You have been exploring different locations, contacting different constructors, and looking out for different financial institutions and banks before buying the home of your dreams. In this big step of purchasing your own home, a person considers different aspects when applying for a loan, including loan amount, interest rates, tenure, repayment options, monthly EMI amount, and other conditions. Let’s understand how the duration of a home loan affects the interest rate, overall cost, and other factors of the loan.
Understanding Home Loan Tenure
Home loan tenure is a stretched-out time through which the person pays back the loan amount in the form of monthly EMIs. The tenure of a home loan is pre-decided, where the applicant wants to avail of funds that he will repay, along with interest, over a fixed time frame. The tenure of the loan affects the interest rate levied and the number of monthly EMIs that one has to pay.
The tenure of a loan for a home ranges from five years to thirty years. An ideal home loan tenure depends on several factors, including the monthly income of the applicant, the interest rate charged, and the age of the applicant.
Moreover, there are two variations of loan tenure: Long-term loans and Short-term loans.
Long-Term Loans: Loans with a duration above five years are considered long-term loans. The maximum duration can go as high as thirty years. In addition, the monthly EMIs and interest charged will be on the lower side, and hence, the money spent on interest will be high due to the longer term.
Short-Term Loans: Loans with a duration of five years or less are considered short-term loans. The monthly EMI amount and interest rates charged are on the higher side, while the money spent on interest will be low as compared to long-term loans.
Types of Benefits for a Home Loan for a Shorter Duration
- Low Rate of Interest: A bank or any other financial institution charges an applicant a lower interest if they are applying for a shorter duration. For example, if you apply for a loan of INR 50 lakhs for twenty years, the interest rate charged will be high compared to the same loan for five years.
- Low Overall Cost of The Loan: The duration of a home loan directly affects the monthly EMIs as well as the total interest one pays. Well, this needs a mathematical calculation for a better understanding. You can use an EMI claculator for accurate results.
Meanwhile, the monthly EMI amount may be higher for short-term loans. On the other hand, the overall cost is low as compared to long-tenure loans, which would lead to substantial savings in the long run.
- Quick Debt Elimination: A shorter loan tenure for a home means an applicant will get debt-free quickly and have the house in his name in a shorter duration, as well as being eligible to apply for other loans. An applicant will be credit-ready and will have sufficient funds in their account, which is important at crucial junctures.
- Easily Managed: It is difficult to predict the financial situation for the next fifteen or twenty years as it varies with time. It will take time to predict what will be the situation in the upcoming years. With long-duration home loans, an applicant will still be liable for the payment during the tenure of the loan, irrespective of any financial conditions. But, if an applicant is availing of a short-term loan, they can still manage to repay the amount.
- Less Stress: Owning a home loan for a long duration increases psychological pressure and creates stress. With short-term loans, one will easily and quickly pay off his debt, which will give him a sense of peace.
- Faster Disbursal: A short-term loan is disbursed relatively quickly due to the small loan amount and minimal documentation. If an applicant needs faster disbursement, then he must opt for a shorter amount and duration.
A Quick Path To Your Dream Home
Having a home of one’s own paves the way to a world of benefits and financial freedom. And a home loan with Tata Capital sets you on a path to both ownership and financial success. Additionally, by opting for a loan with a shorter repayment duration, you’re not just securing a home; you’re securing a future with remarkable advantages. Visit Tata Capital’s website for attractive interest rates on loans.