How To Choose The Ideal Home Loan Tenure For Your Dream House

Buying a house is one of the most important decisions in life. It involves a huge financial commitment and a long-term repayment plan. Therefore, choosing the right home loan tenure is crucial for your financial well-being and peace of mind.

Home loan tenure is the period for which you borrow money from a lender to buy or construct your house. It determines the amount of monthly installments (EMIs) you have to pay, the interest rate you have to bear, and the total cost of your loan.

In this blog, we will discuss the pros and cons of short-term and long-term home loan tenures, and how to select the ideal one for your situation.

Home loan tenures can range from 2 years to 30 years, depending on the lender and your eligibility. Generally, a shorter tenure means higher EMIs but lower interest cost, while a longer tenure means lower EMIs but higher interest cost.

Let us compare the two types of tenures with an example. Suppose you want to borrow Rs. 50 lakhs at an interest rate of 8% per annum for buying a house. Here is how your loan repayment would look like for different tenures:

| 10 years | Rs. 60,550 | Rs. 22.66 lakhs | Rs. 72.66 lakhs |

| 20 years | Rs. 41,822 | Rs. 50.37 lakhs | Rs. 1.00 crore |

| 30 years | Rs. 36,674 | Rs. 82.03 lakhs | Rs. 1.32 crore |

As you can see, a shorter tenure of 10 years would save you Rs. 59.37 lakhs in interest cost compared to a longer tenure of 30 years. However, it would also increase your EMI by Rs. 23,876, which may put a strain on your monthly budget.

On the other hand, a longer tenure of 30 years would reduce your EMI by Rs. 23,876, which may give you more financial flexibility. However, it would also increase your interest cost by Rs. 59.37 lakhs, which may affect your long-term savings and goals.

Therefore, the choice of home loan tenure depends on your income, expenses, savings, goals, and risk appetite. There is no one-size-fits-all answer to this question. You have to weigh the pros and cons of both options and decide what works best for you.

Here are some factors that you should consider while choosing your home loan tenure:

Your age and retirement plan: Your age and retirement plan affect your loan eligibility and repayment capacity. Generally, lenders prefer younger borrowers who have a longer working life and income stability. They also offer longer tenures to younger borrowers, as they have more time to repay the loan. However, you should also consider your retirement age and plan, as you may not want to carry a loan burden after you stop working. Ideally, you should aim to repay your loan before you retire, or at least have a sufficient retirement corpus to cover your EMIs.

Your income and expenses: Your income and expenses determine your disposable income, which is the amount of money you have left after meeting your essential needs. Your disposable income should be enough to cover your EMIs comfortably, without compromising your lifestyle or savings. You should also factor in any future changes in your income and expenses, such as salary hikes, bonuses, promotions, inflation, family expansion, medical emergencies, etc. A higher disposable income may allow you to opt for a shorter tenure and save on interest cost, while a lower disposable income may require you to opt for a longer tenure and pay lower EMIs.

Your savings and goals: Your savings and goals reflect your financial priorities and aspirations. You should have a clear idea of how much money you want to save and invest for your short-term and long-term goals, such as education, marriage, travel, retirement, etc. You should also have an emergency fund to deal with any unforeseen situations. Your home loan tenure should not hamper your savings and goals, but rather complement them. A shorter tenure may help you build equity in your house faster and free up your income for other goals, while a longer tenure may help you diversify your portfolio and achieve multiple goals simultaneously.

Your interest rate and tax benefits: Your interest rate and tax benefits affect the cost and affordability of your home loan. Generally, lenders offer lower interest rates for shorter tenures, as they perceive less risk and uncertainty. However, you should also consider the tax benefits that you can avail on your home loan interest and principal payments under Section 24 and Section 80C of the Income Tax Act, respectively. These tax benefits can reduce your effective interest rate and increase your savings. You should compare the interest rates and tax benefits offered by different lenders and tenures, and choose the one that maximizes your net benefit.

Home Loan Prepayment: A Smart Way to Reduce Your Tenure and Interest Cost

Home loan prepayment is the process of paying off your home loan partially or fully before the end of the tenure. It can help you reduce your tenure and interest cost, and save money in the long run. However, you should also be aware of the prepayment charges and tax implications that may apply in some cases.

It reduces your loan burden and stress: Prepaying your home loan can help you get rid of your debt sooner and enjoy the ownership of your house without any worries. It can also improve your credit score and enhance your borrowing capacity for future loans.

It saves you interest cost and increases your returns: Prepaying your home loan can help you save a significant amount of interest cost, especially if you prepay in the initial years of the loan, when the interest component is higher. It can also increase your returns on investment, as the appreciation in your property value would be higher than the interest cost.

It gives you financial flexibility and security: Prepaying your home loan can help you free up your income and cash flow for other purposes, such as investing, saving, spending, etc. It can also give you financial security, as you would have a valuable asset that can serve as a collateral or a source of income in case of any emergency.

Use your surplus income and windfalls: You can use your surplus income and windfalls, such as salary hikes, bonuses, incentives, gifts, inheritance, etc., to prepay your home loan. This way, you can reduce your loan balance without affecting your regular budget or savings.

Increase your EMI amount periodically: You can increase your EMI amount periodically, as per your income growth and affordability. This way, you can reduce your tenure and interest cost gradually, without putting too much pressure on your finances.

Choose a shorter tenure if possible: You can choose a shorter tenure if possible, as it would automatically reduce your interest cost and increase your EMI amount. However, you should ensure that you can afford the higher EMI comfortably, without compromising your other financial obligations or goals.

Compare the prepayment charges and tax benefits: You should compare the prepayment charges and tax benefits before deciding to prepay your home loan. Some lenders may levy a penalty or a fee for prepaying your loan, especially if it is a fixed-rate loan. You should check the terms and conditions of your loan agreement and calculate the net benefit of prepayment. You should also consider the tax benefits that you may lose on your home loan interest and principal payments, if you prepay your loan before the completion of the tenure. You should weigh the pros and cons of prepayment and make an informed decision.

Choosing the ideal home loan tenure is a personal and subjective decision that depends on various factors, such as your age, income, expenses, savings, goals, interest rate, tax benefits, etc. You should analyze your financial situation and preferences, and select the tenure that suits your needs and aspirations. You should also consider the option of home loan prepayment, as it can help you reduce your tenure and interest cost, and save money in the long run.

We hope this blog has helped you understand how to choose the ideal home loan tenure for your dream house. If you have any queries or feedback, please feel free to share them in the comments section below. Thank you for reading!