How To Choose The Right Home Loan Tenure
Without a doubt, while choosing a home loan, it is crucial to borrow responsibly. Long-term interest savings are made possible and the repayment process is free of any unanticipated difficulties.
So, it stands to reason that choosing the appropriate duration for your house loan is a crucial component of borrowing wisely. In order to get your house loan accepted by the lender, this is one of the most important decisions you will need to make.
Let's go more to learn how to determine the appropriate tenure for your mortgage.
Why is it important to choose the right tenure?
Your choice of home loan term has a significant impact on the amount of interest you will be required to pay on the amount you borrow.
Choosing a proper duration is also influenced by how quickly you want to pay off your loan and whether you anticipate needing money at different points in your life.
It's also critical to be aware of how much your home is anticipated to appreciate during the loan's term before choosing an appropriate loan term. It may be better to choose a shorter term than paying more if you can make a profit when you sell the house because a longer tenure may incur higher interest costs.
Factors that influence Home Loan Tenure
Your Income: One of the most critical variables in determining the length of your mortgage is your income. It will be more advantageous to choose a shorter term tenure if your income flow is consistent and you are able to make payments on time while taking into account your other obligations. On the other hand, picking a longer tenure can be a wiser choice if your income is inconsistent or you might require money at different times of your life. However, if you choose a longer tenure, your total interest payment would be larger.
Age: Your age will also have an impact on the loan's term. Young people should choose a longer loan term rather than a shorter one because it is more practical. You can thereby lessen the burden of your EMI. However, if you are older and have the resources to make timely payments on your house loan EMI, a short-term loan would be more appropriate.
Interest rate: Your interest outflow will be reduced and vice versa as the interest rate decreases. Since interest accrues annually, it follows that the longer your tenure, the more interest you must pay. A shorter duration, however, can cause a large increase in your EMI payments each month.
Loan amount and down payment: No financial institution covers the entire cost of the property. Up to 90% of the property's market value may be funded (*subject to applicable terms and conditions). You would be required to pay 20% of the purchase price as a down payment if a financial institution were to finance 80% of the property's market value. The amount you must borrow from your financial institution is merely 70% of the property's market value if your funds allow you to put down 30% of the property's market value. Since you were originally considering a 20-year tenure, this might allow you to opt for a 15-year tenure. It is usually wise to make a larger down payment because you will need to borrow less money from the financial institution and pay less interest as a result.
Existing Debts & Monthly Expenses: If you already have other debts, such a personal loan or a car loan, it is advisable to choose a loan with a longer term and lower monthly payments so that your monthly responsibilities don't exceed 60% of your monthly income (*t & c applicable). On the other hand, a shorter term will be the best choice if your monthly costs are low because you will save money on interest.
Retirement: If you are nearing retirement, it is advisable to choose a shorter tenure so you can pay off your debt before you stop working. The financial strain on your family after retirement will be lessened as a result.
Tips to reduce home loan tenure
Optimize Your Down Payment: The larger your down payment, the less you must borrow, and the less you will pay in interest altogether, so it is usually recommended to pay a higher amount as a down payment. You can pay off your debt in a shorter period of time as a result.
Part Prepayments: Partially prepaying the principle will shorten the length of your mortgage. You may, for instance, pay a pre-payment of Rs. 50,000 yearly in addition to the EMIs on a home loan with a ten-year term and a principal balance of INR 20 lakhs. Your total interest expense as well as the length of your loan will be lowered as a result.
Restructure the Loan: You might choose to shorten the term of your current house loan by implementing a home loan restructuring strategy. Naturally, you may always request a higher EMI from your lender to shorten the length of your loan if your income is increasing.
Refinancing: You can always choose to refinance your mortgage if you believe that the interest rate on it is too high. To pay off the current mortgage loan in this approach, you take out a new loan from a different lender. This enables you to bargain for a cheaper interest rate and other beneficial terms and conditions.
Applying for a house loan can be a difficult procedure because it involves meticulous planning. There is no doubt that choosing the ideal home loan tenure requires planning and time. Making an informed choice requires giving serious consideration to the elements that determine the length of your loan. Your monthly payments can be reduced and your loan can be repaid in the amount of time that best meets your needs by choosing the tenure that is right for you.