What is Ideal Home Loan Tenure

The most expensive investment most people make in their lifetime is buying a home. There was a time when people used to save money through their working years to buy a house. Buying a home entirely with your own money is not practical in today’s times as the prices of homes are surging every year. And if you are a potential home buyer, you’d need financial support to buy a home in your name.

A home loan is a financial product offered by banks and housing finance corporations to help you buy, construct, renovate or rebuild your home with ease. Home loans are normally larger and of longer term than other types of loans. The lenders offer you a housing loan after a detailed assessment of your and the particular property’s eligibility.

Home loan tenure is the total period in which you repay your home loan back to the lender. The maximum tenure you can get for a home loan depends on factors like your age, monthly income, time left in retirement, monthly expenses, etc. Most banks and financial institutions offer a maximum tenure of 30 years including AU Small Finance Bank. However, they require you to repay your loan before you retire from your job.

You can choose your repayment schedule by selecting either a short-term housing loan tenure or a long-term home loan tenure based on your financial preferences.

Below are a few major factors affecting home loan tenure:

1. Your age: One of the factors that affects your home loan tenure is your age. Most banks offer a tenure of up to 30 years or until your retirement age. The repayment term duration varies from bank to bank. If you take a home loan in your early employment years, you can get the benefit of a longer tenure in terms of a lower EMI or a higher loan amount.
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3. Home loan amount: Your home loan amount directly affects the home loan tenure that will be offered to you. The bank will create your home loan repayment schedule as per the sum of the principal and the applicable interest amount based on the home loan interest rate offered. The home loan rates also affect your home loan tenure. You can opt for a home loan tenure based on your monthly income and the home loan instalment amount.
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5. Existing debts and loans: Before choosing your home loan repayment tenure, you must keep in mind your existing debts and loans. You can settle some of your debts or combine them into a single loan to enhance your borrowing capacity. Alternatively, you can choose a longer home loan tenure to reduce your home loan EMI.
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7. Loan repayment capacity: Your home loan repayment capacity affects your home loan tenure. For instance, you can choose your home loan EMI based on your monthly budget requirements. If you choose to pay a higher home loan EMI every month, your repayment tenure will be short. But, if you choose to pay your home loan amount in smaller EMIs, your repayment tenure will be longer.

Choosing your home loan tenure is one of the most critical decisions you’ll make while taking a home loan. After all, your loan tenure directly impacts your cost of borrowing, which increases the overall cost of the home. However, note that there is no best tenure for home loan. Choosing the best home loan tenure completely depends on your financial status, preferences and goals in life. As a home loan borrower, you will have to come to the optimal value that strikes a comfortable balance between your home loan requirement and current financial condition.

You may choose to pay a higher EMI and close the loan early. This option can help you save a considerable amount of money in midlife. But the reality is that a major chunk of home loan applicants opt for the lowest EMI possible to have a greater cash flow to meet their other living expenses. You must aim to strike a balance between closing your home loan faster as well as having a decent cash flow.

By doing regular savings and with proper financial planning, you can close even your long-tenure home loan early. You can make multiple pre-payments along with paying your regular EMIs. In this way, you can take a higher loan amount and pay a lower EMI.

Multiple factors influence the technicalities of a home loan. You must rely on the plan of your home loan provider or your friends as no one knows your situation better than you. You can discuss the loan with your family members and explore all the options before choosing your ideal home loan tenure. The ultimate objective is to utilise your existing resources in the most optimum way. For instance, you can explore paying a higher down-payment to lower your loan, EMIs and interest outgo. You can aim to close your home loan in 8 to 10 years, which is also the average home loan tenure in India.