Experts recommend that you should weigh different home loan options from different service providers, compare them basis different factors like interest rate, fees and charges and then pick the one that suits you the best. However, equally important is to choose a suitable tenure that helps you repay the loan comfortably, which is at your discretion to decide. If you choose an excessively long tenure, it would unnecessarily drag your loan and cost you a heavy interest payout. On the other hand, if you keep the tenure too short, it could hamper your day-to-day finances. Moreover, the loan amount you avail should not be too high in the context of your budget.
So what should be the ideal home loan tenure? Here is a small guide to help you decide on the ideal home loan amount and its tenure.
Your home loan tenure is an important determinant of your Equated Monthly Instalments (EMI). over time. A home loan tenure usually varies between 15-30 years. You should consider some important factors listed below while determining the home loan tenure and the loan amount you avail. .
Current income
Once you take a loan, you will have to allocate funds from your income to pay the EMI. Consider your current income taking into account the total monthly expenditure to decide the tenure you want to choose. If you have a good income that is significantly higher than the expected EMI, you can keep the tenure shorter, so that you can pay off your loan faster. On the other hand, if a high EMI payout each month can affect your monthly budget, it would help to keep your tenure longer and opt for a lower EMI.
Interest rate
Interest rate for home loans plays a crucial role in determining the total payout for the loan. Hence, you must put your best effort in getting a home loan at a lower interest rate. One way to assure you get the best possible interest rate available in the market, is to have a good credit history and credit score. If you are planning to get a home loan anytime soon, it is imperative that you analyse your credit score right now and start taking measures to improve it.
Your age
It is important to consider your age while deciding the home loan tenure. For example, if you are close to your retirement age, you should opt for a shorter tenure so that you can pay off the loan while you are still earning. Similarly, it is better to opt for a longer tenure if you are young and between the age of 20-40. This helps to distribute the loan over years and it also gives you a chance to prepay the loan when needed. Also, usually lenders approve a home loan for a tenure of up to 30 years, or up to the age of retirement of the applicant. So, if you are close to retirement age, you might find it difficult to get a home loan for a longer tenure.
Your loan amount
Needless to say, you should consider the loan amount for loan repayment. Taking a higher amount loan for a shorter tenure could increase the EMI burden and can also disturb your regular budget. On the other hand, having a long tenure for a larger home loan amount could be helpful. This would help you to distribute the loan amount comfortably over several years.
It is important to find a balance between the EMI and tenure when opting for a home loan. It should be neither too short as to unnecessarily put pressure on your monthly finances, nor too long to stay there as a burden for a long time.
