When you buy a property and take a home loan, one of the first questions you ask the bank is - What is the tenure I can get?
In India, banks give you a home loan of tenures ranging from 10 years to 30 years. There are NBFCs that are even offering 40 year loans (but remember, long term loans have their own risks).
Tenure of the loan is the number of years that the bank offers you to repay the loan. This is a function of your age. For instance, at 25, it is easy to get a 30 year loan, but at 40 years of age, these 30 year loans are tough. Let us look at home loan tenure meaning and the home loan minimum tenure that is ideal.
Long Tenure Loans vs Short Tenure Loans
Quite often, borrowers believe that by getting a longer tenure, they would be able to reduce the EMIs.
This is a two-way street.
While the monthly EMI burden may come down, the amount of interest cost that you pay over a longer period is substantially higher. Check the example below where we have shown 3 home loan tenures, to understand all the different situations better.
Rate of interest
The table is quite self-explicit. In the above instance, there is a sharp fall in EMI when you move from a 10 year loan to a 20 year loan, although the total interest paid more than doubles. But then you go from 20 years to 30 years, the interest cost goes up substantially, but the EMI reduction is not large enough. That is where you must avoid very short tenures and very long tenures.
How To Select Your Home Loan Tenure
It is a personalized decision, but here are some basic points to consider when you choose the tenure, assuming that all tenures are available to you.
Irrespective of the tenure you choose, variable rate home loans can be foreclosed after the cooling period at zero penalty. Hence, if there is a big inflow that you get, use it to defray your home loan (either full or in part) and get closer to your unfettered ownership target.
Tests To Apply When Selecting Home Loan Tenure
Here is a quick list of factors to consider before you finalize your tenure.
To sum up, loan tenure’s meaning is about the time to repay the loan. You can keep a home loan minimum tenure of around 15-20 years, but do not stretch too much on the higher side.
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