A home loan allows an individual to borrow money to purchase a home or cover the costs of repair, extension, or the construction of a home. One of the key terms of a home loan is its tenure, which refers to the length of time over which the loan is repaid. The home loan tenure can vary widely, from a few years to 30 years or more. Various factors can influence the term of a home loan, including the borrower’s financial situation, the lender’s policies, borrower’s age, and market conditions.
One must know the pros and cons of longer and shorter loan tenures to choose the right home loan. Here are some things to note in this regard.
Home loan maximum tenure
The maximum tenure of a home loan can be extended up to 30 years and sometimes more. A longer home loan tenure can offer the benefit of lower interest rates as the repayments are made over the years, and the borrower does not have to bear the brunt of repayment in a rush. This results in a relatively affordable loan deal.
Home loan minimum tenure
The minimum tenure of a home loan can differ from lender to lender. However, most lenders offer loan tenures starting from two to five years. A shorter home loan tenure can help borrowers clear their debt in a shorter time but can be relatively expensive as the interest rates are comparatively higher.
Difference between long and short home loan tenure
| Points of difference | Long home loan tenure | Short home loan tenure |
| Home loan tenure | Tenures usually last more than five years. However, the maximum tenure can vary from lender to lender. | Tenures usually stay under five years. However, the minimum tenure can vary from lender to lender. |
| Rate of interest | The rate of interest is relatively lower. | The rate of interest is relatively higher. |
| EMI (Equated Monthly Instalment) | The value of the EMI is lower as the loan amount gets disturbed over the long term. | The value of the EMI is higher as the loan amount needs to be cleared in a shorter duration. |
| Loan amount | In most cases, the loan amount for a long home loan tenure may be high. | In most cases, the loan amount for a short home loan tenure may be low. |
| Disbursal process | The disbursal process may be longer for a longer home loan tenure. Since these types of loans are taken for high amounts of money, lenders take time to study the applicant’s credit score, risk profile, professional and financial background, house details, etc. | The disbursal process is normally shorter for these types of home loans. These loans are generally taken for a smaller amount. As a result, lenders may not carry out stringent verifications and background checks. |
How to choose the right home loan tenure?
One can select a suitable home loan tenure based on the following:
- Financial situation: When choosing the right home loan tenure, it is essential for an individual to consider their financial situation and expenses. They can then calculate the tenure from the EMI they can afford to pay towards the loan each month. Longer loan tenures will result in lower monthly payments, but more interest paid over the duration of the loan. Shorter loan tenures will result in higher monthly payments, but less interest paid overall.
- Long-term financial goals: One should consider their long-term financial objectives and how a home loan fits into their plans. If they plan to stay in the home over the long term, a longer loan tenure may be more suitable. However, if they think they may sell the home or refinance in the near future, a shorter loan tenure may be a better option.
- Interest rates: Interest rates offered by the lender should also be taken into consideration. If interest rates are currently low, a longer loan tenure may be an excellent way to lock in those rates. If interest rates are high, a shorter loan tenure may be a better choice to pay off the loan as quickly as possible and save on interest.
To sum it up
Home loan tenure is a key term to consider when taking out a home loan. A longer loan tenure will result in lower monthly payments, but more interest paid in total. A shorter loan tenure will result in higher monthly payments but less interest over time. Each option can have its pros and cons and may suit different people and needs.
It is essential to carefully consider all factors and research before deciding on the right home loan tenure based on individual circumstances.
Disclaimer- This article is based on the information publicly available for general use as well as reference links mentioned herein. We do not claim any responsibility regarding the genuineness of the same. The information provided herein does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. We expressly disclaim any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided herein.
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