In the past, most Indians were averse to taking loans to construct their homes. It was common for people to dip into the retirement savings to build their post-retirement home. Two of the main reasons for this were getting loans was cumbersome and people did not want debt in their lives.
This has changed in the last few decades, with banks becoming more open to Home Loans and offering competitive interest rates. Also, people have more disposable income to seriously consider Home Loans.
Easy access to a Housing Loan is attracting young adults to buy their first home, sometimes even before marriage. However, for most borrowers deciding the tenure is always a problem. Should they go with a short-term or a long-term home loan? Well, you may be tempted to go for a short-term Home Loan to get free from debt quickly, but a longer tenure loan has its own benefits that many borrowers may not be aware of.
Lending institutions judge the eligibility of a person based on their ability to repay the principal and interest in the form of EMIs (Equated Monthly Installments). Your ability is further assessed on how much disposable income you have each month after deducting all your obligations and other debts. When you opt for short Home Loan Tenure, the loan amount reduces, whereas for longer tenure the amount eligibility is higher.
So, if you go in a longer tenure, not only do you get a higher amount, but you will also be able to purchase a bigger or better home than would you would with a shorter Home Loan tenure.
If you take a Longer Tenure Home Loan under floating interest rate, you will not incur any penalty for prepaying the outstanding amount on loan. The same holds true for fixed interest rate, but there is a caveat. You cannot borrow from another lending institution to prepay the pending loan amount.
If you have taken the loan under long tenure, you will still be repaying a specified percentage of the loan each year. However, you will not have to pay any penalty for the prepayment.
As you can see, a longer tenure allows you to get debt-free quicker and still enjoy flexible payments based on the situation of your cash flow.
Income Tax Act, Section 24B offers tax deductions in the interest payment of Home Loans. If you look around carefully, you will realize that the tax benefits offered are quite lucrative. There are no other tax benefits for paying interest on the loan for the home purchase. Hence, it is best to enjoy this benefit for as long as possible which is what you can do with longer tenure Home Loans.
Section 80C of the Income Tax Act also allows you to save money on the principal amount. You can get deductions of up to 1.50 Lakhs. If you are checking out properties, you may already know that prices are high. You will have to get a sizable loan amount to buy a decent home. Hence, if you take shorter Home Loan tenure, you will be paying a large chunk of the principal each month. As a result, you will not be able to claim maximum benefits under Section 80C as you would be able to do if your Home Loan tenure is longer.
If eligibility becomes a problem, opt for the longest possible tenure. While most banks offer tenure of up to 20 years, there are others that allow up to 25 years. However, do remember that your age plays a role in deciding the maximum tenure. For instance, if you are 40 years old salaried individual, you may not be able to avail a 20-year loan as by the time you repay the loan amount and interest you will be past retirement age. However, if you are a self-employed professional, the chances of getting a 20-year Home Loan are high.
Don’t be eager to be debt-free and assume a shorter tenure. You could end up with EMIs that are way too high. So, consider your present and future financial liabilities to decide the loan tenure. If eligibility is not an issue, opt for a longer tenure and ensure there is no prepayment penalty. This way, you will end up paying smaller and more affordable EMIs.
You can get in touch with the financial experts as MyMoneyMantra to help you decide whether longer or shorter tenure is more apt for you. The experts will evaluate your financial situation and goals and then offer the right guidance and also put you across to lending institutions so that you avail competitive interest rate. MyMoneyMantra offers customized loans for you at home per your convenience.
To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 60+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.