The dream of owning a house is something that many people aspire to. However, with the rising cost of the property, it can be challenging to save enough money to make this dream a reality.
As a result, many people opt to apply for a home loan. But before you jump into applying for a home loan, it’s crucial to understand what home loan tenure is.
So here’s a detailed explanation of home loan tenure, the factors affecting it and how you can choose the best tenure for a home loan.
What is a Home Loan Tenure?
Home loan tenure, also known as the “home loan repayment period,” refers to the length of time in which you can repay the entire loan amount along with interest. This term is commonly used in the banking industry and significantly impacts the interest rate and the number of EMI payments you need to make. Hence, it’s crucial to consider tenure carefully before applying for a home loan.
Typically, you get a short-term or loan term home loan. In the latter, the EMIs are higher, while in the former EMIs are shorter. To make the process of calculating your EMIs easier, you can use an online home loan EMI calculator.
Short-Term Housing Loan Tenure
Short-term loans are an excellent option for quick financing, typically lasting up to 5 years. However, the minimum tenure for a home loan is 1 year. If you wish to apply for this, the minimum loan amount for a minimum home loan tenure is Rs 5 lakhs.
However, the trade-off for a shorter loan period is that lenders usually charge a higher interest rate, and the EMI amount is generally higher. So, although the EMI amount may be higher due to the loan being spread over a shorter time period, the total interest you pay will be lower.
The advantage of a short-term loan is that you can repay your debt quickly and become a homeowner sooner.
Length of Long-Term Home Loan Tenure
When it comes to home loans, longer repayment tenures are ideal. These tenures are typically longer than 5 years, with the maximum home loan tenure reaching 30 years. You can apply for a maximum loan amount of Rs 5 crore if you opt for a max tenure for a home loan. Lenders usually charge lower interest rates for long-term loans as the repayment period is spread out over several decades. This also means that the EMI payments are lower.
However, keep in mind that the total interest paid will be higher due to the longer duration of the loan. Overall, longer repayment tenures provide an affordable and convenient way to finance your dream home, making it the best tenure for a home loan.
Factors Affecting Home Loan Tenure
#1 Borrower’s age
Younger borrowers can opt for a more extended tenure as they have more working years ahead of them to repay the loan. Sixty is the average retiring age for salaried individuals; hence, the maximum tenure of a home loan would be equal to the remaining years of service.
If you’re self-employed, lenders may treat your retirement age as 65 increasing your chances of being eligible for a home loan.
#2 Age of the property
When a borrower takes out a home loan, the property serves as collateral, meaning that in the event of a default, the lender can sell the property to recover the outstanding debt. The loan tenure cannot exceed the property’s residual life.
Therefore, if the property is older, you may be required to opt for a shorter tenure to mitigate the risk of default.
#3 Income and financial stability
Lenders prefer borrowers with a stable job history, as this reduces the risk of default. For instance, if you have a higher income and better financial stability, your chances of getting a home loan are higher than those with a lower income or poor financial stability.
Plus, a person about to retire is generally not eligible for a home loan unless they can prove that they have another regular source of income.
#4 Leasehold properties
When you buy a property built on leasehold land, you’re essentially paying rent to the land owner to use it.
As a result, when you apply for a home loan to buy a property on leasehold land, the lender will only give you a tenure equal to or shorter than the remaining leasehold period. The reason is that if the leasehold period ends, the lender may be unable to sell the property to recover their money if you default on the loan.
If you think you cannot repay the loan in the short term, opt for a maximum home loan tenure. But if you’re still worried about the home loan tenure, turn to Tata Capital.
We provide you with the flexibility to choose the loan amount, tenure, and EMIs, as per your repayment capability – all at a competitive home loan interest rate.
Apply now and fulfil your dream!