How to Choose the Right Home Loan Tenure Based on Your Investment Goals

Your home loan tenure directly impacts your home loan EMI. A longer tenure reduces the EMI burden. However, if you calculate with a Home Loan EMI Calculator, you would see that longer tenure significantly increases your interest payment. You will end up paying more interest compared to short-term home loans. 

In this blog, we have shared a few tips you can consider while selecting the loan tenure. 

Understanding Home Loan Tenure 

Home loan tenure refers to the period over which you will repay your home loan. Typically, tenures range from 2 to 20 years. Choosing the right tenure is vital because it affects your monthly instalments and the total interest paid over the life of the loan. 

A shorter tenure can lead to a more rapid path to homeownership but may require tighter budgeting. Conversely, a longer tenure can offer lower monthly payments, making it easier to manage your finances but increasing the total interest.

Factors to Consider for Loan Duration 

Let’s look at the key factors to consider when choosing the loan duration:

1. Budget and Financial Goals 

   When choosing your loan duration, consider your monthly budget alongside your financial goals. A shorter tenure typically results in higher monthly payments but lower total interest, making it ideal if you can manage those costs and aim for quick financial independence. 

    

   Conversely, a longer tenure offers lower monthly payments, helping you maintain stability while saving for other goals like retirement or education. 

    

2. Total Interest Outgo 

   The total interest payable over the loan's life is crucial. A longer tenure typically means higher overall interest payments.

    

   Opting for a shorter tenure can significantly reduce interest costs, freeing up funds for other investments in your financial plan. 

    

3. Down Payment and Loan-to-Value Ratio 

   When choosing the right home loan tenure, consider the down payment required by the bank. A higher down payment reduces the loan amount, resulting in lower EMIs and interest payments. 

    

   Additionally, banks calculate the Loan-to-Value (LTV) ratio, which determines the percentage of the property value that can be financed through a loan. A lower LTV ratio may require a higher down payment but can result in better loan terms and interest rates. 

    

4. Flexibility and Prepayment Options 

   Evaluate the flexibility offered by banks in terms of prepayment and foreclosure options. Prepaying your loan can help reduce the interest burden and shorten the loan tenure. 

    

   Additionally, consider if the bank offers foreclosure options, enabling you to pay off the loan entirely before the scheduled tenure. 

    

   Let's understand this with an example.

₹20 Lakh Home Loan EMI for 10 Years and 15 Years

Let's assume you plan to take a home loan of ₹20 lakh. The interest rate is 9% p.a. Now, let's compare the EMI and interest payable for tenure of 10 years and 15 years.

You can clearly see that the longer tenure reduces the EMI however increases the total interest payable, thereby increasing the total cost of the loan. Evaluate your repayment capacity and select a tenure accordingly.

Disclaimer: The above calculation is for educational purposes only. Ujjivan Small Finance Bank doesn't take any responsibility on the accuracy of the information. Please use an online Home Loan EMI Calculator to check your loan emi. 

Financial Planning Tips for Home Loans

Effective financial planning is vital for managing your home loan and ensuring long-term stability. Here are some key tips to guide you:

1. Look for Better Interest Rates 

   Whether you are already servicing home loan EMIs or searching for the best home loan offers, it is crucial to continuously look for better interest rates. Research online or offline to gather information on interest rates from various banks. Even a small reduction in interest rates can result in substantial savings over the loan tenure. 

    

2. Reduce Your Liabilities 

   It is advisable to avoid unnecessary expenses and maximise savings to strengthen your finances. As a significant portion of your income goes towards home loan EMIs, having additional savings can provide a cushion against unforeseen liabilities. 

    

3. Calculate EMIs 

   Use online EMI calculators to simulate different home loan tenures and their impact on your monthly payments. Play around with different interest rates and loan amounts to see how they influence your EMIs, helping you make a more informed decision.

    

4. Factor in Future Changes 

   Consider your future financial situation. If you expect a salary increase or additional income, a shorter tenure may be manageable in the long run. Conversely, if you anticipate financial strain, such as job changes or rising expenses, a longer tenure can provide the flexibility needed to navigate uncertainties without overwhelming pressure.