Home loans are tricky when it comes to finding the right lender, the right interest rates, and the suitable tenure. It takes a lot of analysis and planning to hit the right notes and find the best option that suits your requirements as well as your financial needs. The most common question that most people tend to struggle with is – what should be the tenure of my home loan?
While both long-term loans and short-term loans come with their own set of benefits, there are some cons of each as well. Therefore, a homebuyer must assess the implications of both before taking a call. In this guide, you can find out more about both short-term and long-term home loans.
What Does Home Loan Tenure Mean and How It Impacts Your Loan Application?
Loan tenure refers to the predetermined duration within which a borrower commits to repay a loan. The loan tenure significantly impacts your equated monthly installments (EMIs).
A longer tenure leads to lower EMIs, enhancing short-term affordability but increasing the total interest payout. On the contrary, a shorter tenure results in higher EMIs, reducing overall interest payments but demanding a more substantial monthly commitment.
Choosing the suitable loan tenure involves a careful balance between immediate financial comfort and long-term cost implications, ensuring alignment with your financial goals and capacity.
Know All About Short-term and Long-term Home Loans
Here’s everything that you need to know about loan tenures to make the right choice between the two:
Longer-Term Home Loans
- Lower EMI Payment: Opting for a longer loan term reduces the monthly equated monthly installments (EMIs) as you will be paying them for a long time. A longer-term home loan makes it more manageable on a month-to-month basis, keeping your liquid money free for other expenses.
- Improved Affordability: Longer loan terms enhance the affordability of the property by improving the loan-to-value ratio. This allows the borrowers to qualify for higher loan amounts. It is the perfect solution for those who are looking to buy an expensive property for themselves.
- Cash Flow Flexibility: Lower EMIs free up cash flow, providing flexibility for other financial goals, investments, or handling unexpected expenses. This will also give you better control over your finances.
- Extended Interest Payments: While EMIs are lower, the total interest paid over the loan tenure is higher, contributing to an increase in the overall cost of the property. This means you will be spending more than a shorter-term commitment.
- Extended Debt Commitment:Since borrowers commit to debt for an extended period, this creates a dent in their long-term financial flexibility. It also delays debt-free homeownership.
Shorter-term Home Loans
- Higher EMI Payments: Opting for a shorter loan term increases the monthly EMIs, requiring a higher financial commitment each month. This will impact the availability of liquid cash every month, which can become critical in times of emergencies.
- Reduced Total Interest Outlay: However, shorter terms result in significantly lower overall interest payments, leading to a lower total cost of the property. So, you will pay much less overall, saving substantial funds in the long run.
- Faster Debt Repayment: Borrowers can become debt-free faster, gaining full ownership of the property in a shorter duration. This instils financial confidence and opens options to take more loans as well. Moreover, the new property can then act as an asset for further investments.
What You Must Consider Before Choosing?
You must take a closer look at the following factors before choosing between the two:
- Financial Goals: Consider your long-term financial goals, such as retirement, education, and other investments, when deciding on the loan term.
- Risk Tolerance: Assess your risk tolerance and ability to manage higher EMIs without compromising your financial stability.
- Interest Rate Outlook: Consider prevailing interest rates and projections to make an informed decision on the loan term.
- Income Stability: Stable and predictable income is crucial, especially when opting for shorter loan terms with higher EMIs.
- Flexibility Requirements:Evaluate the need for financial flexibility in the short term versus the benefits of long-term affordability.
Connect With the Right Lender
If you still need clarification about your loan tenure, you must talk to your lender about this. Players like Tata Capital have dedicated teams to help you choose the suitable loan tenure based on your immediate financial profile and future projections.
Ultimately, the choice between a longer or shorter home loan term should align with your financial goals, risk tolerance, and overall financial health.