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Tata Capital > Blog > Loan for Home > How to choose the right home loan tenure?

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How to choose the right home loan tenure?

How to choose the right home loan tenure?

Buying a home is one of the biggest financial milestones for most people. And a home loan has increased the chances of achieving this goal. When taking a home loan, the first question a borrower asks the lender is: What is the home loan tenure I can get?

Home loan tenure refers to the number of years a lender offers to you to repay the loan. It varies from lender to lender, ranging from 5 to 30 years. The EMI payment and the interest outgo depend on the loan tenure.

Minimum home loan tenure vs. maximum home loan tenure

Tenure plays a vital role when selecting a home loan. It determines your EMI burden, interest outgo, and overall financial planning. The following table compares the home loan maximum tenure against the home loan minimum tenure to help you decide which one best suits your needs.

CriteriaMinimum home loan tenureMaximum home loan tenure
Typical range5 to 10 years25 to 30 years
Monthly EMI paymentHigher EMIsLower EMIs
Total interest paymentLower overall interestSignificantly higher interest due to a greater number of EMI payments
Financial burdenHeavy in the short termSpread over a longer period
Loan repayment speedQuick repayment, debt-free soonerLonger repayment period, the debt continues
EligibilityRequires higher income stabilityEasier eligibility with lower EMI
Impact on savingsReduces the ability to save in the short termAllows more savings and liquidity
FlexibilityLimited flexibility due to high EMIGreater flexibility in managing expenses
Ideal forHigh-income earners desiring early closureYoung borrowers seeking affordable EMIs

How to choose the best home loan tenure?

The following factors can make it easier for you to choose the home loan tenure that’s ideal for you:

  • Loan amount

The loan amount is one of the most important factors determining the repayment tenure. If you apply for a higher loan amount, choosing a shorter loan tenure will translate to higher EMIs and interest payments, which can be difficult to repay for the average income borrower. A longer home loan tenure is suggested, especially if the loan amount is large.

  • EMI payment capacity

The size of EMI payments also depends on the loan tenure, making it essential for you to assess the EMI amount you can pay comfortably. A home loan EMI calculator can help in picking the ideal combination of home loan tenure and EMI payment amount to ensure smooth repayment.

Factors affecting home loan tenure

  1. Borrower’s age

A more extended loan tenure is ideal for young borrowers who are expected to have more working years to repay the loan. The loan tenure you’re eligible for will depend on the remaining years of service. Salaried individuals can apply for a home loan up to the age of 60 years, while self-employed individuals can apply up to the age of 65 years.

  1. Property’s age

When you avail of a home loan, the property you intend to buy is pledged as collateral. If you fail to pay your dues, the lender can sell the property to recover the remaining debt. So, you cannot have a loan tenure that’s longer than the property’s residual life.

  1. Income and financial stability

Lenders sanction a higher loan amount and a longer loan tenure to borrowers earning a higher income. It is because the chances of default are lower. Ensure that you have a steady and reliable source of income and a stable financial situation. Individuals nearing retirement are generally not eligible for a home loan unless they can prove that they have another regular income source.

  1. Leasehold properties

If you take a home loan to buy a property on leasehold land, the lender can sell the property to recover your defaulted loan only until the end of the leasehold period. Thus, in this case, you are eligible for a tenure equal to or shorter than the remaining leasehold period.

Conclusion

Choosing the right home loan tenure is a crucial part of your homeownership journey. Try to pick a tenure based on your income, financial condition, and lifestyle. If it is challenging for you to pay a high EMI amount due to a tight budget, opt for the home loan with the maximum tenure. Similarly, if you have a steady income, choose a shorter home loan tenure. A longer tenure may reduce the size of the EMI, but it will also increase the interest you pay over time. 

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FAQs

What should be home loan tenure?

Home loan tenure should be chosen based on the interest rate, loan amount, and repayment capacity. Longer tenures reduce EMI but increase the total interest paid, while shorter tenures increase EMI but reduce overall interest. Ideally, opt for a tenure that ensures manageable monthly payments with minimal interest outgo.

How to reduce home loan tenure?

To reduce home loan tenure, consider making higher EMI payments, partial prepayments whenever possible, or increasing EMI amount when your income rises. This will help you repay the loan faster, even before the tenure ends.

Which tenure is best for a home loan?

The best home loan tenure depends on individual financial circumstances, the loan amount, and the EMI amount. A shorter tenure is preferable if you can afford higher EMIs, as it reduces the overall interest paid. However, if you want to pick lower EMIs to manage monthly expenses, a longer tenure might be more suitable​.

How can I extend my home loan tenure?

You can extend your home loan tenure either by negotiating with your existing lender or by transferring your outstanding balance to a new lender. You may also choose to restructure the loan. The ideal option will depend on your present financial situation. While extending your loan tenure will reduce your monthly EMI, it will increase the total interest due over time.

Does extending my home loan tenure have a negative impact on my CIBIL score?

Loan restructuring can temporarily hurt your CIBIL score by indicating that you requested a change in loan terms to tackle financial difficulty. If you missed or delayed any EMI payment before restructuring, it can further affect your score, even if the loan restructuring was successful. Make sure the revised loan terms are reflected in your credit report accurately to avoid discrepancies.

What is the best age to take a home loan?

There’s no specific best age to secure a home loan. Although you can apply when you turn 21, the ideal time will depend on factors such as income stability, career phase, life stage, and financial readiness. You must take a home loan when you are ready to pay the monthly installment comfortably, without any financial burden.

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