Even today, buying a house is one of the most expensive investments an individual makes. However, with more and more people opting for home loans from banks and NBFCs which offer various products at competitive prices, people no longer need to save money for years before they can afford a house. The financial support that a bank/NBFC provides makes it possible for every potential individual to own a house.

But at the same time, it’s equally important to choose the right loan tenure to derive the maximum advantage from home loan products.

Short-Term Tenure VS Long-Term Tenure- Which One is Better?

The loan tenure, which refers to the period you select to repay the loan in full, is an essential factor in determining whether your decision to obtain the loan serves your financial goals. The longer the tenure, the higher the total interest outflow would be over the entire repayment term. On the other hand, if you opt for a shorter tenure, your monthly outflow – EMIs (Equated Monthly Instalment) may be higher but your total interest outflow over the repayment period would be lower.

Your ideal home loan tenure depends on your monthly debt obligations and income. If you have a higher income and only a few debt obligations, you will be able to pay a higher EMI and a short-term tenure is recommended.

On the other hand, if you have a large debt obligation, a longer tenure with lower EMIs will suit you the best.

Factors Affecting Home Loan Repayment Tenure

Here are some of the factors that may impact your home loan repayment tenure:

1. Age:

The ability to repay is closely correlated with the borrower’s age. Younger customers are expected to have a long term in the workforce leading to a better ability to repay. Hence, a long-term home loan will suit their purpose. On the other hand, a short-term home loan is generally considered suitable for a borrower nearing retirement age as their term as an earning professional may be limited.

2. Age of the property:

In the event of default in the repayment of a home loan, the disposal of the property mortgaged is the lender’s best option to recover the dues. Consequently, a lender would ideally want the tenure of the home loan to be lesser than the remaining useful life of the property. It will ensure that even if the property has to be disposed of at a later stage during the repayment term, the lender would be able to derive a reasonable value for the asset.

3. Home loan amount:

As a thumb rule, lenders are more comfortable in disbursing a higher loan amount when borrowers opt for a longer tenure. However, the borrowers get the flexibility to choose the tenure they want to opt for based on their monthly income and obligations.

4. Existing debts and loans (if any):

You should keep in mind your existing financial liabilities (loans and credit cards) before you select the home loan tenure. In order to increase your borrowing capacity, it is preferred to either settle some of your debts or go for debt consolidation before you opt for the loan. However, the other way is to go for a longer home loan tenure and pay lower EMIs.

5. Loan repayment capacity:

Your income-expense equation is perhaps one of the most significant parameters for deciding tenure. A short-term home loan is preferable if your income is high with a lower range of expenses. On the other hand, if your expenses are higher, you should ideally opt for a longer tenure.

Conclusion

When deciding on the tenure of a home loan, there is no thumb rule to follow as it completely depends on your financial status, financial liabilities, and preferences. Some of you may wish to pay a higher EMI for a shorter duration, and others may go for a lower EMI for a longer loan duration.

Additionally, if you plan your monthly finances properly and choose an ideal home loan tenure, you would be able to repay the entire loan without any inconvenience.

DMI Housing Finance offers great benefits on home loans and other financial products (LAP, renovation loan, home extension loan, etc). Check your eligibility for any of the offers by submitting your basic details. You can use our branch locator to find a branch closest to your home.

If you want to apply for a loan against property online, you can visit the DMI customer portal today and choose a loan plan as per your requirements. For any questions, you can also call us at 18001214214 or write to us at customercare@dmihousingfinance.in. For a new home loan, give us a missed call at 9772027704.