What is the Ideal Home Loan Tenure

What is the Ideal Home Loan Tenure?
Home loans have become the key instrument for purchasing a
property. Deciding the best home loan tenure is one of the most crucial tasks
while going for a home loan. Home loan tenure has much influence on the cost
of borrowing. The cost of borrowing directly impacts the cost of the property.
The interest on a home loan or any other loan is calculated in a compound
interest rate. So if you have a longer tenure, you are to pay more in the terms of
interest and vice versa.
Factors Which Influences the Home Loan Tenure
Home loan tenure starts from 15 years and can last up to 30 years. That means a
borrower will be under the loan for a quite long span of his/her life. By that
specific span of time, while he/she will be servicing the EMI, one has to reach
other milestones of life. So, it is very important to have a proper brainstorming
before finalizing the tenure of a home loan.
A Longer Tenure Increases Your Eligibility- This may be a bit surprising but
it true that if you go for longer tenure you may be able to borrow a higher
amount. While sanctioning a loan, all lenders check your total take-home
income and EMI should not be more than 50% of that. So if you go for a longer
tenure, your EMI will be smaller and lenders will easily sanction a bigger
amount of loan.

The Age of the Borrower- This is a very important factor which we should
keep in consideration while deciding our home loan tenure. No one will like to
have an EMI burden while he/she will be retired. For example, if your age is 40
at the time of borrowing, then you should not take a tenure of 30 years. If you
take a tenure of 30 years, you will have to pay till you are 70 years old which
might going to be difficult. Moreover, with the growing age, a person is likely
to earn more than a younger person. With a higher income, one should opt for a
higher EMI and less tenure so that he can be debt free before his/her retirement.
Impact of Home Loan Tenure on EMI and Interest Amount - A tenure has a
direct impact on your EMIs. With a longer EMI, you will have to pay a smaller
EMI. But if you take a tenure which is shorter your EMI will be increased. As
your tenure changes, the amount which you are going to pay as interest will also
change. Let's understand the fact with an example. Let's assume you have taken
a home loan of 40 lakhs at the interest rate of 8.35%.
Parameters 15-year loan period 30-year loan period
Loan EMI Rs 39,039 Rs 30,332
Total Interest Rs 30,26,961 Rs 69,19,639
Total Payment(Principal + Interest) Rs 70,26,961 Rs 1,09,19,639
Looking at the above table, an excess of Rs 10,000 per month can bring down
your loan tenure by 15 years and also saves a lot in interest amount that you are
going to pay. A 15-year tenure of home loan can save up to around 39 lakhs of
interest payment which is a great saving.
How to Find the Ideal Home Loan Tenure
Here are the two most common and of course parameters to find out the most
affordable home loan tenure.
The first and the most important factor is the affordability of the EMI. Though
we have shown that a shorter tenure can save you a lot but we must be certain
about our income flow so that we can pay our EMIs on time and never miss
any. As being late in paying EMIs or missing an EMI can make you pay the
penalty and this will simultaneously affect your credit score. The best way to
find the best EMI amount is that your EMI amount should not exceed more than
50% of your take-home income. If you calculate in this way, the chances of
missing EMIs are lessened.

Another thing you should keep in mind that one must try to finish EMI before
your kids join college. Higher education needs a huge amount of money. So if
you can finish paying home loan EMI before that time, you will be able to bear
the education expenses easily. The major expenses on your kids start from his
college and last till the marriage. So clearing all your debts before this will
make you reach smoothly to other financial goals of life.
The Middle Way
The middle and the best way to decide the home loan tenure is to take your
present take-home income in consideration. Or you can keep a higher EMI if
you feel that in near future you are going to get a hike in your salary. So the
initial months will be a bit problematic but once you get the hike you will face
no problem. The other way is that you can take an EMI of 30 years in the initial
years and can save the extra money in a Systematic Investment Plan (SIP) for
three years which can give you a return up to 25% annually. A home loan
interest rate is 8.35% at present market. It means you are going to reap a very
good profit. So after three years, you can pay this amount towards your home
loan part payment which will bring down your principal amount so as your
tenure.
The ideal home loan can vary to each and every borrower. There is no universal
answer to this question. Keeping the mentioned points in consideration will
make you spot out the best tenure for your home loan.