3 Tips To Choose The Right Home Loan Tenure

  Author: Naveen Kumar

Here is a piece of interesting statistics. Typically, 90% of home loan borrowers with 20-year home loans end up repaying their entire home loan before 10 years. Clearly, home loan tenure selected at the outset may not be significant in the long run. However, it has a significant impact during initial few years of the home loan since most people stretch their finances for the maximum possible loan amount. So, how do you pick the right home loan tenure or home loan term?  Here are three tips.

Keep the home loan tenure as short as possible The longer the home loan tenure, higher the amount of home loan interest you pay. So, keeping the loan tenure short helps you bringing down your interest cost. Of course, shorter loan tenure also means commitment to a higher home loan EMI. Thus, it is important to keep a balance between loan tenure and EMI affordability.

Ensure headroom for home loan rate hikes If you go for the longest tenure in pursuit of a higher loan amount and there is an interest rate hike in near term, the only option for the home loan provider will be to increase your EMI. That’s the last thing you need when your finances are already stretched.

Therefore, opt for a home loan tenure that leaves you some headroom to take care of an eventuality of a home loan rate hike. You also need to ensure that in the normal course, you close the loan much before retirement.

Get longest loan tenure if confident of future pay hikes If you are very sure about consistent rise in your income, opt for the longest tenure. This will increase your housing loan amount. You can increase your EMI as your pay increases and repay the loan much before the end of the tenure.

A home loan is the biggest financial liability in your life and choosing the right loan tenure involves creating a fine balance between affordable EMIs and paying home loan interest in the long term. This is something one needs to consider carefully at the outset when opting for a home loan and choosing the right home loan tenure.