Selecting a home mortgage tenor can be tricky. Pick a long one, and you stand to carry a mortgage or loan for longer, but pick a short one, and your monthly EMIs shoot up. This is why deciding the right loan tenor should depend upon assessable factors such as age, income, etc., rather than hunches.
Certain lending institutions understand this and allow you to negotiate a home loan mortgage tenor that suits your lifestyle. Remember that availing of a home loan based solely on low-interest rates without synchronising it with the tenor is unwise.
What Is a Home Loan tenor?
Also known as loan payback term, a home loan tenor is the total amount of time borrowers have to repay their entire loan. This includes both the principal and interest. You can use a home loan EMI calculator to create permutations and combinations of different loan amounts and tenors.
Doing this calculates different monthly installments. Stop when you reach the one most suitable to you, and check the tenor the calculator shows. Know that there are special conditions when your tenor may change from the one at the time of signing the loan contract.
This may happen if you prepay and foreclose your loan early or if you want to reduce your monthly EMI amount. Typically, the maximum loan tenor offered by lending institutions lasts up to 30 years.
Factors Affecting/Determining Home Mortgage Tenor
Here are the top three factors determining your home mortgage tenor:
1. Current Mortgage Rate
The interest rates you are eligible for have a significant impact on your tenor. For example, suppose a lending institution is willing to offer a low home mortgage rate. But, they may do so only at a long tenor. This can be a win-win for both parties – the lender and the borrower. Borrowers who are scouting for low EMI options can take this offer, and the lender earns an income for a longer duration.
Alternatively, you might have a high monthly income and want to pay off your home loan as quickly as possible. In such a case, you can negotiate a short-tenor option for a low-interest rate.
2. Borrower’s Age
In addition to the current mortgage rates, a home loan borrower’s age plays a significant role in determining their tenor. In a nutshell, a 25-year-old borrower can easily get the longest tenor a lender has on offer. A significantly older borrower might still get a long tenor, just not as someone in their 20s.
3. CIBIL Score
A healthy CIBIL score reflects a potential borrower’s creditworthiness and repayment capability. Certain lenders might offer a higher tenor flexibility if you have a decent CIBIL score. A below-average CIBIL score might attract a shorter tenor.
A 3-Step Process for Selecting the Home Mortgage Tenor
Check out the three steps you must consider before zeroing in on your home loan tenor.
Income vs Expenditure
A critical factor to keep in mind while opting for a tenor is your current income. From this, reduce your expenses. If you are left with a modest income, go for a longer tenor. Doing this will ensure you repay your EMIs comfortably and on time.
Choose an Affordable Property
Choose a property based on your income and expense ratio and not your income alone. This way, you will get a loan and tenor, which you can afford.
Age Plays a Role
You must consider your age at the time of evaluating current mortgage rates and taking a loan. If you are in your 20s or 30s, you can opt for a longer tenor.
Looking for a trustworthy lending institution that caters to your housing finance needs? Turn to Tata Capital. We extend housing finance at affordable interest rates with negotiable tenors. You can rest assured of our speedy processing and relaxed eligibility criteria.
To know more about our offering or start an online application, visit our website today!