Finally decided to move out of the rented apartment and get into a home of your own? Unless you have a lot of money saved, you might be looking for a home loan to fund your purchase. Well, there’s no shortage of lenders providing housing finance in the market. However, before applying for a loan, you must research to find the best and most affordable option.

Apart from looking for lenders who offer competitive interestrates, you also need to decide the loan’s tenure. In terms of the loan term, you have two options: short–term loans and long-term loans.

How do the two differ? Let’s find out.

Short term loan vs long term loan

Points of differenceLong-term loan  Short-term loan
Tenure    Tenures of long-term loans are usually above five years. For a long-term home loan, maximum tenure can go as high as 30 years.For short-term loans, the tenure is usually five years or less.
Mortgage period  Since housing finance products are secured, your property won’t be entirely in your name until you pay back the loan. So, with long-term loans, your house will be mortgaged for a larger period.You will get debt-free quickly and have the house in your name in a shorter duration.
Rate of InterestLong term loans are usually spaced out over decades. Hence, lenders charge lower interest rates.Since the home loan tenure is shorter, lenders charge higher interest rates on short-term loans to compensate for the smaller loan period. 
EMI Amount  Given the longer tenure, the monthly EMI  payments will be on the lower side. However, the total money spent on interests will be high due to the longer term.Since short-term loans are spaced out over a smaller duration, the EMI amount is usually high. However, the total interest amount on loan is lower.
Disbursement speed    A Long-term loan usually has a high sanction amount. Due to this, lenders need more time to evaluate a borrower’s creditworthiness and repayment capability. Hence, long term loans require substantial time to be disbursed.  A Short-term loan is disbursed swiftly due to the small loan amount and minimal documentation.

Additional Read:  How to reduce a Home Loan Tenure

Long term loan vs short term loan: Which one to choose?

There’s no best choice when it comes to deciding between a short or long term loan. It all depends on one’s capabilities and needs. If you wish for cheaper instalments and aren’t bothered by the total amount spent in interest, you can go with the long term option. In contrast, if you wish for a speedy loan disbursal and aren’t concerned about high-interest rates, then short term loans are more suitable.

Besides, it’s critical to keep in mind that age also determines your loan eligibility. If you are in your 30s or 40s, lenders might not provide you with a 20 or 30-year loan, as you will reach the retirement age within the loan tenure.

Additional Read:  Tips & Tricks to Reduce Home Loan EMI

In summary

Planning to buy your dream house? Well, Tata Capital can help you achieve your dreams with our affordable housing finance solutions. You can also plan your loan tenure using our home loan tenure calculator. So, what are you waiting for? Visit our website today and start planning using our home loan EMI calculator.

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