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Home Loan Tenure

What Option Would Be Ideal For Home Loan Tenure: 15 Years Or 30 Years?

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When it comes to a home loan, the aspect of tenure is considered to be the most critical decision-making factor in the home loan process. Undoubtedly, this factor has a great impact on the cost of the borrowing which in turn increases the overall cost of the property as well. A typical psychological human perception is that lower EMI simply means lower cost of the home loan amount or fewer burdens on the monthly budget. From a cost angle, it is not at all true. What is the best option? Well, the real answer varies with the different investment plans and other financial goals of the individual buyers. Read on to find the right guidelines that may act as a sign-post for the home loan takers.

Factors that influence the tenure of home loan:

  • Home loan amount: In general banks offer longer home loan tenure in order to get the home loan eligibility of the buyers. Accordingly, the banks always try to push a home loan of 30 years tenure in order to get more interest. If the eligibility seems to be the key factor a buyer can always avail the loan from the banks that offer maximum loan in order to keep the home loan tenure short to 15 years or 20 years.
  • Home loan interest rate: Though the interest rate varies from one bank to another, such variance is very marginal in most of the banks in India. Assuming all other offerings are constant, the lower interest rates are preferred for the shorter home loan tenure.
  • Equated Monthly Installments (EMI): If a home buyer keeps lower EMI it naturally increases the home loan tenure. Most buyers prefer low EMI in order to maintain their existing lifestyle, though such a step would be wrong in a financial sense. Hence one has to make a perfect balance between the two.
  • Age of the buyer: The general thumb rule followed in banks is : Maximum home loan tenure of 60 years minus the current age of the borrower. However, this factor is ignored if the home loan eligibility is not a big concern for the issuing bank. This is very true for people business communities who can always show more income than the salaried individuals.

Taking  clues from the above write up let us understand  some benefits of both 15 years home loan tenure as well as the 30 years home loan tenure. Keep on reading.

Benefits of home loan tenures:

   1. 15 years tenure option:

  • A borrower can save money by taking this option. By reducing the loan tenure a borrower can eventually save goo amount of interest savings.
  • A borrower can pay off his debt earlier and get a relief from the financial burden. In order to have a better credit score, one should not miss a single EMI. If a borrower has more money to spend , this option seems to be better rather than paying less EMI of the 30 years home loan tenure.
  • A sudden surge in higher interest rate can have a great impact when the payment tenure is too long. Hence the lower the tenure is always a better option over the longer ones.

   2. 30 years tenure option:

  •  A borrower can go to this option if he or she cannot afford higher EMI with higher interest rates. This option is found to be suitable for the individuals who otherwise pay 60-70% of their monthly income for EMI payments.
  • By opting longer tenure a borrower has the option of diverting the extra funds on other saving schemes that offer better ROI. Hence one can pay less EMI and make money through other investments.
  • This option allows the borrowers to stay prepared for meeting all sorts of contingencies and other financial crunches such as medical emergency, accident, the demise of the other bread winners etc. More importantly, this option will not allow the borrower to repent of choosing a longer home loan tenure, which offers relatively lesser EMI payment.

Choosing the right option is a daunting task for the borrowers as there are innumerable factors that decide the modalities of a home loan. One should not go by the words of the loan providers or friends since it is ultimately the borrower knows his or her situation well. A discussion with family members will be very handy in making them understand the situation of the borrower.

The ultimate bottom line is quite simple as most of the home buyers would be well served if they are opting for a 15-years home-loan tenure  instead of 30-years tenure. A lower interest and short term clearly mean that a buyer will pay considerably less for the home loan. The real glitch lies in higher monthly payment it is always wise to weigh the value of a less costly home-loan against the other types of saving priorities  such as college for children, retirement rainy-day funds.