3 Factors to Help You Decide Your Home Loan EMI and Tenure
Taking a Home Loan can prove to be one of the most significant financial decisions of your life. After all, not only does this hefty loan have a direct impact on your current financial standing, but most likely has lasting consequences on the way you manage your money. It is this very fact that makes it extremely crucial to determine the loan duration as well as the equated monthly instalment (EMI) that you are willing to pay towards the repayment of your loan amount, ahead of time. This will help you manage your loan rather efficiently, without the need for you to compromise on the quality of your life. To this end, let us take you through three factors which need your due diligence before you Apply for Home Loan.
Your age has a significant impact on the duration for which you can opt for a loan. If you happen to be young and in your late 20s or early 30s, then you can conveniently choose for a loan duration in the range of 20 to 25 years. Contrary to this scenario, if you are in your late 40s or 50s, it is best to take a loan which can be repaid in a span of 10-15 years.
Understandably enough, you wouldn’t want to keep paying hefty EMIs, after you enter the retirement phase of your life! Not only will it impact your standards of living, but will also prove to be a financial constraint, especially when you have other obligations such as paying for insurance, medical expenses, retirement and other lined up expenses.
Let us take the help of an example to help you see this fact in a better light. Consider that you are 45 years old, and you opt for a loan of Rs. 30 Lakhs, to be repaid in 20 years. If the interest rate is taken at 11%, you will be required to pay a substantial EMI of Rs. 30,966, up to 5 years after you retire at the age of 60. In this case, it is best to opt for a maximum tenure of 15 years, so that the loan is repaid well within your career span.
This is yet another crucial factor that helps in the determination of your EMI. Our financial experts suggest that your Home Loan EMI should not exceed 40% of your total household income so that you can use the remaining part of your income towards day-to-day expenses, savings and investments as well as to repay other smaller loans such as car loans. Hence, make sure that in a temptation to pay off your mortgage quickly you do not opt for a high EMI, which puts a strain on your everyday life.
That being said, if you pay a significant small EMI for a more massive loan amount, your tenure will increase considerably, thereby increasing the amount you are required to pay towards the interest. Hence, it is best to find a middle ground, where you EMI is high enough so that you can pay off the loan at the earliest and low enough so that you don’t end up under immense financial stress.
3. To Find an EMI that Best Suits your Needs
You can take the help of MyMoneyMantra’s Online Home Loan EMI calculator.
It is imperative to understand that you cannot miss or delay EMI payments, as this will adversely impact your credit score. In fact, it may even result in decreasing your chances of getting an approval on any other loans that you may consider in future.
Giving due diligence to the aforementioned aspects, it is clear that you must opt for a loan with a longer tenure, as it will help in keeping your EMI at an optimal level. However, when you do so, make sure you ask the lender to waive the prepayment penalty, or at least to lower it. This will ensure that when you have some extra funds, you can use them to make prepayments thus reducing your loan tenure.
Moreover, if you can save a larger chunk of money, you can even pay off your loan in entirety, much before the stipulated tenure. This alternative will save you from the pressure of shelling out a huge amount of money towards the EMI on a consistent basis, while still giving you the much-desired freedom of making the prepayments, as and when your finances allow you to!
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