Are Long-Term Home Loans Better Than Short Term Loans

Are Long-Term Home Loans Better
Than Short Term Loans
There are many young professionals in India at present day who owns their own
home. However, until the last decade, most of Indians preferred to buy a home
with their retirement savings. Buying a home with the retirement savings is
good in terms of being without a debt whole through one's life but at the same
time that hard-earned home cannot be enjoyed for very long by the owner.
Understanding the fact, most of the young professionals of the present day like
to have a home at the young age so that they can enjoy living in their own home
for a long span of time.
Buying a home at a young age is possible only because of home loans. With
a home loan, one can take a large amount of loan which can be repaid in small
EMIs. The EMI of a home loan can be brought to a smaller amount if the
borrower opts for a longer tenure. But at the same time, the cost of borrowing
increases when the loan is repayment continues for a long time.
Choosing the correct tenure of a home loan has always been one of the biggest
doubts of any home loan borrower. Choosing between a shorter tenure to bring
the cost of borrowing down and a long tenure to take a lighter loan of EMI is
really a tricky job. Here we have bought an insight on the home loan tenures so
that one can confidently take the best decision regarding the same.

When Taking a Long Tenure Makes Sense?
Though it is true that a long tenure makes the loan expensive, but there are
times when a long tenure makes a person own the home of dreams. Here are
some of the situations when one can opt for a long tenure of the loan.
When you need a high amount Of loan- An individual’s home loan eligibility
depends on the repayment capacity of the person. When you opt for a long
tenure like 20 or 30 years, the EMI amount becomes smaller. The EMI amount
is proportional to the monthly take-home income of a person and based on
which a loan is sanctioned. It means that one can avail a bigger amount of loan
when the EMI is smaller whereas the same person will be able to avail a
comparatively smaller loan if he makes the tenure shorter which will increase
the EMI amount.
When you want a lighter burden- A longer tenure or in other words a smaller
EMI amount is always easy to service. When you opt for a long tenure, you will
be repaying your home loan without much changes in your monthly budget. A
lighter load will make you enjoy your life in fullest. In another hand, the extra
money you have saved by paying smaller EMI can be used for hitting other
goals of life such as children's education, taking holidays or investments for
better returns.
When tax savings matters a lot- A home loan repayment comes with an
advantage of tax savings. Section 24b and 80c of the Income Tax Act provides
benefits on the interest payment and capital repayment on home loans. One
can save tax on the total home loan repayment of Rs 3.5 lakhs every
year. Taking a home loan and servicing it for many years makes a person save
a huge amount of tax payment.
Why A Short Tenure Is Considered Better?
There are again some points which make a short tenure a better choice. Let's
understand how can a short-term loan tenure be helpful for a home loan
borrower.
Makes you debt free sooner
The best about a short-term home loan is that it makes you debt free sooner.
Being debt free brings financial freedom as well as physiological peace to a
person. When a person is out of his debts, he can think new ways to invest the
money. In other terms, there are people who take a shorter tenure so that the

next milestone of life such as higher studies of children, the wedding of children
etc can be achieved without a monetary crisis.
Brings the cost of borrowing low
A short tenure is a proven way to make the cost of borrowing lesser. The
interest on any kind of loan is calculated in a compounded way. It means that
the borrower has to pay an interest not only in the principal amount; the interest
has to be paid on interest amount too. In other words longer the tenure, bigger
the total outgo of the loan. Look at the table below for a better clarification of
the mentioned fact.
Gives an opportunity to make an investment
A shorter home loan means you are going to pay off the loan sooner. Once the
loan is totally paid, the lender will hand you over the property documents to you
and the 100% equity of the home will be transferred to the owner's name. That
will be the day when you can really announce yourself as the owner of the
property and against which you can take a LAP( loan against property) any
time. Moreover, this is the best time when you can easily start a second source
of income. The capital of your business can be availed by a LAP which is much
cheaper than a business loan.
The Factors That Decide A Home Loan Tenure
So above mentioned are the pros and cons of availing a long tenure and short
tenure home loans. But the matter of fact is that though we may know them
well, we are forced to opt for a tenure which may not be very appealing to us.
Actually, there are facts which have a great impact on selecting a home loan
tenure. Here are the facts-

Age- The age of the applicant is considered by the lender while sanctioning the
loan. A borrower cannot run a loan repayment process beyond the age of 60.
This means that the loan tenure of a person highly depends on the age of the
borrower. Let's say a person has applied for a loan at the age of 45. So the
longest tenure he can avail is 15 years.
Income- The income of a person is checked by the lender to gauge the
repayment capacity. The monthly outgo of a person in loan repayment
(including all loans) should not be more than 50% of his net monthly income.
So sometimes, the lender urges the borrower to opt for a longer tenure so that
the EMI amount comes down and the loan can be sanctioned.
The rate of interest- Before opting a tenure, one must consider the rate of
interest too. A rate of interest on a home loan can be of two types i.e. Fixed
interest rate & floating interest rate. A fixed interest rate will remain same till
the end of the tenure but a floating interest rate may change as it is related to the
market fluctuations and the market trends. So selecting any tenure, one must
examine the kind of interest rate and make the decision.
The Concluding Line
Buying a home or availing a home loan is one of the most important decisions
of life. Any home loan borrower must go through the Home Loan Procedure
meticulously so that the loan availing and servicing the same becomes
effortless. There is always a lot of discussion and brainstorming happens prior
to a home loan and the home loan tenure and the home loan interest rate are the
major ones. Taking informed decisions are always best as this will save one
from future surprises and shocks regarding the loan.