How To Decide Home Loan Tenure ?

A home loan helps you achieve peace of mind by providing you one of the basic necessities of life- a roof over your head. But the same loan can be the cause of sleepless nights at some later stage if not borrowed right for a stipulated period. Tenure is the time period for which you borrow the amount and within this period you have to repay. With so many different loan schemes floating in the market you have to weigh the pro and cons before you sign on the dotted line and for how long.

How To Decide Home Loan Tenure

How To Decide Home Loan Tenure

Arriving at ideal loan tenure is as critical as selecting a lender or deciding between fixed and floating options. Loan tenure dictates your total period of debt and the quantum of monthly repayments.

Impact of Short Term Loan

Some home loan borrowers opt for short term loans say 5 to 10 years, these people are totally risk averse and want to clear and intend to be debt free sooner. The borrower is minimally impacted by long term interest rate fluctuations and market volatility. The benefits of a short term loan are tilted towards the borrower, however not all borrowers can afford the high EMI repayments every month. Setting aside hefty monthly repayments may not be feasible for all borrowers. There are monthly commitments and expenses which borrowers cannot overlook apart from home loan repayments.

Shorter the loan tenure, higher the EMI due. Shorter tenure means the borrower is debt free faster. This helps him allocate more funds towards retirement planning and other profitable investments earlier in his life. However he may not have enough money to build a contingency fund during the tenure of his loan.

Impact of Long Term Loan

Some lenders offer loans for a tenure of 20 to 25 years. The bank simply assures that you pay your home loan dues before retirement. Retirement impacts a borrower’s income levels a risk no lender is ready to take. Typical long term loans are for a period of 10 to 15 years. Though the EMI monthly dues may look affordable, the cost of borrowing is much higher in the case of a long tenure. Some borrowers who want to increase their loan eligibility increase their tenure. They set aside a monthly amount towards medical bills and other contingencies.

There is a danger of your income not rising proportionately as compared to the interest rate hike so set aside a small amount to fall back on. Finally choose a short term loan if you can afford high EMIs and if you are not interested in making investments in other avenues like mutual funds, stocks etc. else if your finances are tight then you will be better off taking a long term loan.

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