How do you derive your home loan tenure? You can derive the tenure based on 3 main factors;

Age of the applicant:

The age of the applicant is the first factor to be considered. If you are in your early 30’s, then getting a longer tenure and lower rate of interest sounds possible. But if you are in your late 40’s and nearing retirement, then you cannot get a loan with high tenure. It is wise to repay the loan earlier than retirement as if you still have to pay the EMI’s post retirement, then it is a risk which is not good for you.

Income of the applicant:

After your age, the second factor to be considered is your income and expenses. Yes, you will get a loan based on your income. Banks/NBFC’s usually do not let you pay more than 40% of your income towards loan repayment. It is wise to take a balanced tenure for you to repay without any hassle. If you take a shorter tenure, it would mean higher EMI’s. This limits your expenses until the loan is repaid and might also be a burden if you need cash urgently to pay off expenses towards medical, education etc.

Purpose of taking the loan:

The last factor to consider while deciding the tenure is your purpose. You need to know that your EMI will include both; the Interest and your principal loan amount. Hence, longer the tenure, higher will be the loan amount to repay AND shorter the tenure, smaller will be the loan amount to be repaid. If your purpose is to invest in a house, then you can be advised to take a longer home tenure. But if your purpose is to sell the house for a profit, then it is wise to take a short tenure so you repay a smaller amount and sell it for profit.

It is wise to plan well in advance as to how you will repay the loan. Yes, taking it for a longer tenure along with an option of pre payment will help you not only manage the loan but also the expenses and unexpected emergencies. Overall, you need to plan and research before deciding a shorter/longer tenure of the loan. Now that you are clear with the factors needed to derive your loan tenure, find out about how to apply for a home loan.

One of the most basic understanding in home loans is that; Shorter the tenure, Higher would be the EMI and the loan would be repaid faster OR Longer the tenure, lower would be the EMI and the loan would take a longer time period to be paid off. The difference in both is that when you take a longer tenure, you pay a higher interest amount. To focus on what should be the ideal home tenure for you, focus on the below mentioned points;

• Affordability:

Repaying off a loan quickly is what you want to do. But do not forget that to repay off a loan quickly, the EMI value would be very high. That high amount must be affordable as per your earnings. If it is affordable then you can go ahead with it. If not, then it is advisable to bring down the EMI amount and increase the tenure. A home loan must never come between you and your financial goals in life.

• Loan Requirement:

Your income is what helps the bank decide how much to lend you. Hence when you go to the bank with a home loan requirement of 50 lakhs, they will compute your salary and estimate how much they can lend you for 10-15-20-30 years etc. Accordingly you will get the loan. Hence you don’t always get to decide how many years are enough to repay a loan.

• Age factor:

It is said that it’s best to take a home loan in the initial stages of your career. You would never want to take a loan when you are closer to retirement as it will be tough to pay back the loan. Also while taking a loan, it’s best to find out if this loan will surpass your retirement age or no. If not, then you are safe. If yes, then you need to reduce the tenure.

• Tax Benefits:

For everyone with a home loan, there are tax benefits provided every year. Under the income tax act, there are few sections like Section 80c and section24 that give exemptions until a certain amount every year. Also, few companies offer annual bonuses. You can use them to partly pay the loan amount. This helps in reducing the overall EMI pending and can reduce the burden on you.

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