We discuss how to choose the right home loan term or the right home loan tenure
Also, why home loan term is almost as important as home loan interest rate
You need give home loan term equal importance when you are about to take a home loan
Longer the home loan tenure, lower the home loan EMI
Or, shorter home loan term will mean a larger home loan EMI
Longer home loan term means lower EMI but larger overall interest payout during the term
Basically, it is a trade-off between EMI affordability and the overall interest you pay during the loan term
Larger interest payment due to longer loan periods means less investments for future needs
Why people don't sense the pain of a longer home loan tenure is it doesn't squeeze the home budget
There is no ideal home loan tenure
Each person's needs and financial realities should determine the best home loan term
Home loan with terms of more than 5 years are termed as long term home loans
Home loans with terms of less than 5 years are termed as short term home loans
Let's take a Rs 35 lakh home loan at 7.55% p.a interest
When you move from a 15 year loan to a 20 year loan, you save Rs 4,242 in EMIs
But you pay additional Rs 9 lakh as interest
If the home loan term increases from 20 years to 25 years
You only save Rs 2,274 more but pay Rs 10 lakh extra in interest
So, a jump from 15 year to 25 year loan, you are paying more than Rs 19 lakh extra
For higher interest, the impact will be even more
For larger home loans, the impact will be even more
You need to pay far more attention to home loan term than what people do
Lowest home interest rate is the only important thing to watch out for when taking a home loan
There are factors related to your realities that should determine your home loan term
Longer remaining work life allows you to opt for longer home loan term
With subsequent income hike, you can service the EMIs and then partly or full prepay the loan
The income level, the loan and EMI are other interrelated factors
Larger the income, larger the home loan you can take and larger the EMI you can pay
When home loan EMIs are a larger part of your take home pay, you need a longer home loan term
When you make EMI affordable with a longer home loan term, you add to your interest burden
Home loan interest rate determines your EMI and decision of your home loan tenure
With a hike in interest rates, you might choose to extend the home loan term
If income is high and interest rate is low, EMI will be a small part of the take home pay
In such a case, you will not mind a shorter home loan term
When EMI takes up a large portion of take home pay, a longer loan term is the only option
More the outstanding loans, more inevitable is a longer home loan term
If you are young, you can go for a longer home loan term
You can bet on the fact that with rising income, the EMI burden will lessen
Eventually, you could partly or fully prepay the loan and retire it
Keep a little headroom for future home loan rate hikes
In case of home loan rate hikes, you should have the headroom to extend the loan term
If you are older, with less work life left, the loan provider may not offer a long home loan term
They will offer a home loan term that ensures that you fully repay the loan before your retirement
By yourself, you can opt for a shorter home loan term than offered
The young also benefit from the home loan tax benefits that ease the pressure on the budget