All-you-need-to-know Before Deciding Your Home Loan Tenure!

By Author: Fayeem
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Taking a home loan is a big life decision. Made with jurisdiction and with proper knowledge about the entire process, it can give you the biggest gifts in life – a place to call home. But if you do not take proper steps before applying for a home loan, it can become a headache of a lifetime. The emergence of new finance companies in the market that offer low interests home loans has really made it much easier to obtain a home loan. But there are some things that should be kept in mind before signing the papers. One of the most important things is the tenure. Let us discuss the factors that you should keep in mind before deciding the length of the tenure.

Steer clear of misconceptions

Loans have an age-old stigma attached to them – especially in our country. This is perhaps the reason people want to be rid of them as quickly as possible. According a survey conducted with people applying for home loan in Delhi, most of the applicants preferred a short tenure – but is short tenure a good idea or should you go for a longer tenure?

Advantages of opting for a longer tenure

• One of the most widely ...
... understood benefits of a longer tenure is that you would have to pay smaller monthly EMI instalments. As a consequence, your loan eligibility would increase. So if you require a substantial amount of home loan and you aren’t eligible for it, increase your tenure. There are home loans available that offer tenure as long as 30 years.

• If you opt for a longer tenure, the situation is under your control. What it essentially means is that in case you want to increase your fixed obligation (amount of monthly EMI), you can visit your bank branch and file an application. Compared to that, if you have taken a loan for a shorter tenure and you encounter financial problems, it would be very difficult to get your bank to increase the tenure.

• Whether you take home loan for short tenure or a long tenure, the overall interest remains the same. It is a misconception that short tenure home loans generate lesser interest. This was perhaps, one of the reasons why during the survey, people who were applying for home loan in Delhi, preferred a shorter tenure. If you’re concerned about paying interest in excess and want to save money, you should go for low interest home loans.

• Another major benefit of opting for a longer tenure is that it acts as a cushion against the probability of interest rate increasing in the future. Many people take loans on floating rate, hoping the rate would decrease in the future as the economy grows.
However, things don’t always happen as we imagine them and it is smart to prepare for the worst case scenario. So if you go for long tenure, small EMI, even if the interest rate increases in the future, you’ll be able to manage the situation. But if you’re on a short tenure and already paying the maximum EMI as per your capabilities, you’ll be in real trouble if the EMI increases. This is another reason to go for a longer tenure.

Even if you have surplus money and you aren’t bothered by above scenarios, you still shouldn’t go for a short tenure home loan. By opting for longer tenure, you get tax benefit on principal as well as subsidy on interest. So why would you want to exhaust your money on paying excess taxes just so you could get rid of the home loan? Instead, you can use your surplus money to secure your future, by opting for retirement planning policies. All in all, long tenure is always the better choice when taking a home loan.