Most homebuyers favour financing solutions to support their housing needs. A home loan fetches them substantial sums of money, which they can pay back in smaller instalments over a predetermined period known as the repayment tenor. The optimum duration is usually dependent on multiple factors such as the borrower’s age, income, financial objectives, repayment potential, etc. Selecting the ideal home loan tenor is extremely crucial as it can influence credit affordability.
Decoding Home Loan Tenor
The number of years you take to repay a home loan is called the loan tenor. The maximum loan period may stretch to 40 years. Since your repayment is directly linked to the loan tenor, expect a high EMI if you choose shorter tenors; whereas a longer tenor will denote smaller EMIs, with an accrual of interest that can hike the overall credit costs.
Considerations for Choosing the Ideal Repayment Period
Before deciding on the home loan tenor, take your spending into account. Select a lengthier tenor to cover your EMIs and other costs if your monthly expenses are significant. However, if your finances are on the right track, choose a shorter duration. While there is no ideal repayment period, borrowers must opt for loan tenors based on certain vital considerations such as:
Age of Borrower
Your age is a major determinant of the repayment period. Younger borrowers can take up longer terms so that they have sufficient time to pay off loans with reasonable EMIs. But if you are an older borrower, a shorter tenor might be advisable so that you may complete the repayments before retirement.
Financial Ability
Ensure that your loan term corresponds with your salary to oversee the long-term instalments. Individuals who can afford to pay greater EMIs could choose shorter tenors to restrict the interest component. In case of financial constraints, pick extended tenors for manageable EMIs.
Loan Amount
The length of your loan is primarily determined by the overall loan amount, which will include the interest effective on the principal sum. Borrowers need to repay this combined amount through monthly instalments. Hence, try to secure the lowest home loan interest rate when scouting for loan offerings. Furthermore, use a home loan eligibility calculator to assess the maximum loan amount you may qualify for.
Existing Loans and Liabilities
If you have other ongoing loans and obligations, pick a longer tenor to handle all requisite payments without overshooting your budget. Paying off the loans or consolidating them might leave you with more funds to take on bigger EMIs.
Future Investments
An extended tenor works well if you intend to save for investments, retirement or children’s education. A modest EMI will make timely repayments easier, allowing you to maintain a good credit record and also allocate towards asset creation.
Which is Preferable – a Shorter or a Longer Tenor?
The table below encapsulates the basic differences between the two tenors so that you can decide on the right repayment period:
| Selection Parameters | Short Tenor | Long Tenor |
| EMI affordability | Higher EMIs per month; quicker repayment | Lower EMI payout; longer tenor |
| Interest payment | Reduced interest outgo as a loan paid off sooner | Higher interest build-up |
| Monetary status | A larger income required to handle bigger EMIs | Smaller EMIs accord financial flexibility |
| Risk exposure | Decreased risk as debts cleared faster | Greater risk due to lengthy loan duration |
| Investment options | Lower funding potential for other investment opportunities | Higher cash availability for investments and commitments |
Home Loan Prepayment: Reduce Your Home Loan Tenor
Experts say that if you raise your EMI by 5% annually, you can shorten the loan tenor and close your debt sooner. You could also pay off the loan earlier by partially prepaying the outstanding loan in addition to the scheduled EMI payments. The principal and interest amounts decrease when a borrower chooses to prepay a portion of the loan. However, there may be certain costs attached to prepaying a fixed-interest rate loan, so check these fees beforehand.
Summing Up
Bear in mind that the repayment period you select for your home loan will directly impact the cash flow. Therefore, take into account your credit goals, risk tolerance and monetary condition before you apply for a housing loan. The use of an online home loan EMI calculator can offer important insights into how various tenors may affect the payable EMI. Utilise this tool to alter the values per preference and customise the loan; so that you may strike the right balance between your financial abilities and favourable repayment options.
