Are Long-Term Home Loans Better Than Short Term Loans

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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-
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Are Long-Term Home Loans Better Than Short Term Loans

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