Buying your own house and a car is a cherished dream for most Indians and an important life goal too. Since the cost of these assets is huge, most people take up loans to fund them. Since the loan amount is big, applying for it would require much due diligence and consideration.
Among other things, you would need to decide the tenure of the repayment period for the loan. Home loan tenure refers to the time period that a borrower will take to repay the loan amount along with the interest.
In India, home loan tenure depends on the kind of property you are investing in. Typically, the home loan tenure ranges between two to 30 years, depending on the lender. Short-term home loans have shorter repayment windows and higher interest savings, while long-term home loans have lengthy repayment windows and smaller EMIs through the interest cost works out to be higher.
Here are some factors on which the tenure of a home loan depends:
Borrower’s Age
The age of the applicant is an important criterion for lending institutions while deciding the loan tenure. Typically, most financial institutions give a home loan for the maximum tenure of up to 30 years. However, this is subject to the retirement age, which is typically between 60 years and 65 years.
For instance, HDFC Ltd allows home loan repayment tenure till the age of 65 years. So, if your age is up to 35 years, you may opt for a loan tenure of 30 years. But suppose an applicant's age is 45 years, he may not be able to opt for 30 years tenure, the maximum tenure in his or her case can be 20 years (maximum age limit minus applicant age).
EMI Amount
The EMI is calculated on the basis of three factors: loan amount, interest rate and tenure of loan. “The shorter the tenure, the higher will be the EMI. In order to bring down the EMI amount, a longer tenure is required. This also helps in enhancing the home loan eligibility,” says V. Swaminathan, CEO, Andromeda and Apnapaisa, a loan distribution firm and its digital arm respectively. However, when the term is longer, the total interest cost over the entire tenure is also, typically, higher.
Total Outgo
The longer the tenure, the higher will be the total outgo by the end of tenure. For instance, if you take a loan of Rs 25 lakh, at the rate of 7 per cent per annum for 20 years, your total outgo will be approximately Rs 46.5 lakh. If you take 30 years to repay the loan, your total outgo will be approximately Rs 60 lakh. This is because you are spreading the principal repayment for a longer period and interest is charged on the remaining balance.
Total Outgo Increases With Tenure |
Assumptions: Loan Amount: Rs 25 lakh; Interest rate: 7%
Tenure
Total outgo
20 years
Rs 46.5 lakh
30 years
Rs 60 lakh
“Therefore, while deciding the tenure, don’t just go by the maximum tenure you can avail. Evaluate your EMI paying ability, make sure that after paying the EMI, you are left with enough funds to meet your expenses and investment for other goals,” says Swaminathan. Most financial advisors suggest that EMIs should not be more than 50 per cent of take home salary.
