A home loan allows a person to buy or construct a house at an early age keeping up with rising real estate prices. After purchasing one’s dream home with such a loan, one has to repay the debt within a fixed time. This fixed period is the tenure of a home loan.
A borrower’s home loan tenure depends on various factors and also influences his/her housing loan interest rate. An individual must choose the home loan tenure wisely considering his/her repayment capability, current financial standing and outstanding loans. To get a clear idea of their home loan, consider calculating their EMI beforehand. This will help them with an idea of their loan tenure. On that note, every bank or NBFC tend to offer different minimum and maximum home loan tenure.
What is the maximum home loan tenure?
When applying for a home loan, tenure plays an important role in determining the home loan interest rate of an individual. Banks and NBFCs approve a loan tenure after judging one’s profile and CIBIL score. If an applicant has a good CIBIL score, and sufficient financial capacity, banks and NBFC can approve their loan application for an extensive tenor with a comparatively lower interest rate.
The maximum tenure for home loan set by most banks and NBFCs is 30 years. One can only avail such a long only when he/she is applying for a housing loan at a young age. This gives such applicants sufficient time to repay his/her debt via small EMIs. Generally, younger applicants can negotiate better loan terms as they carry lower risks for lenders.
It is important to note that one’s choice of tenure will impact his/her interest rate and total payable interest. If one chooses a longer tenure, his/her interest rate will increase. Then, he/she will have to pay higher total interest. The case will be reversed for a home loan with a shorter tenure.
Factors affecting home loan tenure
Several factors tend to determine the tenure of a home loan. The list below highlights the factors that affect one’s home loan tenure.
- The loan amount
An individual’s home loan amount highly impacts tenure. Banks and NBFCs tend to approve home loan applications for a given tenure after analysing the applicant’s income. If an individual is applying for an amount that is as low as 3-5% of his/her yearly income, one can go for a shorter tenure to repay the debt and save on their interest. For a higher loan amount, one can go for an extended tenure to lower the EMI burden.
- Borrower’s age
As stated earlier, one’s age while borrowing a home loan will also determine their loan tenure. If one is applying for a loan at an early age, say, at 25 years, banks and NBFC will approve the loan application with maximum home loan tenure. However, as people grow older, their maximum home loan tenure will tend to decrease.
- Ongoing debts and loans
An individual’s existing loans and credit card bills also play an important role in determining his/her maximum loan tenure. If a bank or an NBFC notices that an applicant has a huge outstanding amount, it will consider him/her a risky investment. Then, the lender may not approve his/her application for a longer-tenure loan.
- Loan repayment capacity
The home loan tenure also depends on one’s repayment capacity that a bank or NBFC determines based on one’s credit report. If an applicant’s credit report shows that he/she repays his/her debts on time, he/she will have a good CIBIL score. This will enhance his/her chances of getting the home loan applications approved with maximum loan tenure.
If one’s credit report displays an impressive loan repayment record, he/she may be eligible for pre-approved loan offers. These are provided by lenders for select applicants that expedite the loan approval process. One can check their eligibility for such offers by entering his/her name and other basic details.
- Loan EMI
If a person is planning to pay a home loan with a small EMI, he/she can opt for the maximum home loan tenure. On the other hand, if he/she aims to foreclose their home loan, a shorter tenure could be the better option. However, for short-tenure home loans, one has to pay a huge EMI.
On this note, it is important to calculate one’s EMI before applying for a housing loan. This will give one a clear idea of how much home loan he/she should apply for. He/she can calculate these manually using mathematical formulas or a housing loan EMI calculator.
- Interest rate
The interest rate and tenure of a home loan are interlinked. If the interest rate is high, one can repay his/her debt in small parts throughout an extensive tenure. With a shorter tenure, one’s total interest outgo is lower though his/her monthly obligation will be high.
The repo rate of the Reserve Bank of India (RBI) also influences the interest rate on home loans. An increase in the repo rate means that banks and NBFCs will eventually increase their interest rates which impacts borrowers’ home loan EMIs and tenure.
Longer tenure vs shorter tenure home loan
A long term loan is one which one repays for a tenure of 5 years extending up to 30 years. On the other hand, home loans that have a tenure of less than 5 years are usually considered shorter-term home loans.
When one opts for the maximum tenure home loan, he/she can pay a relatively low EMI. However, the interest rate for such a loan will increase and their total payable interest will also be high.
On the other hand, a shorter tenure home loan may make a borrower eligible for a lower interest rate. The total cost of such a loan also falls significantly as the total payable interest is comparatively lower than home loans with long tenures.
To strike a balance between these two, one can opt for a medium-tenure home loan. A medium-tenure home loan usually spans between 15-20 years. The EMI for such home loans is not as high as short-tenure loans or as low as long-tenure loans. Thus, one does not need to pay a huge EMI and total interest amount for such loans.
If borrowers are financially capable enough to deal with a high EMI amount, they can opt for short-tenure home loans. On the contrary, if one urgently needs a home loan but cannot repay the debt in a short time, he/she can opt for the maximum home loan tenure. This will save him/her from huge EMI repayments and one can repay the debt conveniently while growing their savings.
Alisha Parker