A home loan with longer tenure comes with many benefits such as a higher home loan eligibility, flexibility in repayment, and most important – home loan tax benefits.
About a few decades ago, Indians used to follow a typical schedule while buying or constructing their homes – using their retirement funds along with taking loans for shorter tenures. Now, with increasing urbanization, easy home loans, and increased family earnings, this trend is changing.
Almost every Indian today is buying their first home before they get hitched – the reason being the easy availability of home loans.
A typical home loan is granted in a range of 15 to 30 years which is backed up by various factors such as the loan amount, payment capacity, and many others.
While borrowers can be offered a choice to make while selecting the home loan tenure, one will not avail of such an opportunity in case the loan amount is huge and the repayment capacity makes them go for a long tenure.
Most borrowers prefer finishing the liability as soon as they can, and given a choice, they would go for the shortest tenure if possible. Well, this is preferred without giving much attention to some of the important aspects.
Here are some interesting benefits of a home loan with longer tenure…
1. Home loans with longer tenure come with higher loan eligibility
Home loan eligibility is decided whether a person is able to repay the loan every month, in the form of EMIs i.e. Equated Monthly Installments. This EMI is determined based on a person’s disposable income. So, for home loans with short tenures, an EMI goes higher and so, you will be eligible for a small home loan amount. For a home loan with longer tenure, higher eligibility is offered which enables one to buy a bigger and better home.
2. Better flexibility of repayment
Nobody can charge penalties on the prepayment of a home loan when taken with a floating interest rate. If you want to sell the home or just want to get free from the burden, you can easily prepay the entire outstanding or part amount.
But, when your home loan is under a fixed interest rate, you can repay a fixed percentage of your home loan every year, without any penalty. Hence, you can get rid of your debts earlier, while maintaining the flexibility of repayment considering your cash flow.
3. Home loan tax benefits
While repaying the principal amount of a home loan, section 80C allows for a deduction of up to Rs. 1.5 lakhs. While the share of home loans taken today to buy a decent property is comparatively large. The principal amount in the repayment schedule will be fairly large for a home loan with shorter tenure when compared to long term loans. That being so, a considerable portion of the home loan repayment will be a waste. And further, one could not claim the deduction under section 80C when crossed the specific limit while opting for home loans with shorter tenure.
A home loan with longer tenure – Impact on EMI
At a fixed interest rate, the home loan EMI decreases as the home loan tenure increases.
Here’s an example of how EMI per lakh at a 9% interest rate.
- 16 years Loan – EMI per lakh Rs 1014
- 20 years Loan – EMI per lakh Rs 900
- 25 years Loan – EMI per lakh Rs 839
- 30 years Loan – EMI per lakh Rs 805
- 40 years Loan – EMI per lakh Rs 771
This means, if you take a home loan of Rs. 30 lakh for 15 years, the EMI will come around Rs. 30,428. But when a home loan is taken for 25 years, the EMI will be around Rs. 25,176 this comes almost 17% lower.
Whom does a home loan with a longer tenure suit?
A home loan with a maximum tenure is suitable for salaried people within the age group of 25 to 30 years and professionals with their own business within the age group 30 to 40 years. A home loan with longer tenure helps younger individuals to own a house earlier with more advantages like tax exemptions and tax rebate under section 80C while repaying the loan.
This is a simple guide on home loans with longer tenures, Kasturi Housing recommends buyers to consult their financial advisors before making any move with a home loan.