Once you've narrowed down on a lender, and decided on a loan option (fixed or floating), loan tenure becomes critical. Should you opt fo...
Once you've narrowed down on a lender, and decided on a loan option (fixed or floating), loan tenure becomes critical. Should you opt for a short tenure or take a loan for a long term - say 25 years? Loan tenure is also one of the components that decide how fat your monthly EMI outflow is going to be.
How long can you stretch a home loan tenure? While most banks limit the maximum tenure of home loans to 15 years, some lenders offer tenures of 20 to 25 years. In exceptional cases, a borrower can get a loan for a time period of 30 long years. What is important for the bank is to ensure that you pay up the entire loan before you retire. Once a borrower retires, his monthly money inflow will be tremendously impacted. This will in turn have a bearing on his capacity to repay the loan. This is the risk that most lenders are unwilling to take.
When interest rates jump up, it is observed that either the EMI goes up or the tenure is adjusted upwards. By paying a higher EMI, a borrower intends to bear the increased costs right away and not postpone these expenses to the future. However, in a scenario of constantly increasing rates, the borrower pays out more if he increases his tenure instead of EMI.
Short tenure loan is for those borrowers who cannot withstand the uncertainties of the turbulently swaying rates. Some borrowers prefer paying off their loan as soon as possible and get rid of the burden of constantly increasing rates. But the borrower must not forget that the monthly EMI outflow will be huge and the family must endure a tremendous amount of financial stress. Other normal expenses will have to be sacrificed only to meet the commitments towards the home loan. The positive side is that the loan tenure would lapse soon and the house could be your very own soon.
What happens when you opt for a short tenure and pay out heavy EMIs is that you may not be able to create alternate savings. You may not have enough left to invest and build assets. Hence, the borrower may be deprived of the comfort cushion of financial assets that he could sell and use if the need arises. In the future, if a critical situation arises where you need to borrow money, it may not be possible.
How long can you stretch a home loan tenure? While most banks limit the maximum tenure of home loans to 15 years, some lenders offer tenures of 20 to 25 years. In exceptional cases, a borrower can get a loan for a time period of 30 long years. What is important for the bank is to ensure that you pay up the entire loan before you retire. Once a borrower retires, his monthly money inflow will be tremendously impacted. This will in turn have a bearing on his capacity to repay the loan. This is the risk that most lenders are unwilling to take.
When interest rates jump up, it is observed that either the EMI goes up or the tenure is adjusted upwards. By paying a higher EMI, a borrower intends to bear the increased costs right away and not postpone these expenses to the future. However, in a scenario of constantly increasing rates, the borrower pays out more if he increases his tenure instead of EMI.
Short tenure loan is for those borrowers who cannot withstand the uncertainties of the turbulently swaying rates. Some borrowers prefer paying off their loan as soon as possible and get rid of the burden of constantly increasing rates. But the borrower must not forget that the monthly EMI outflow will be huge and the family must endure a tremendous amount of financial stress. Other normal expenses will have to be sacrificed only to meet the commitments towards the home loan. The positive side is that the loan tenure would lapse soon and the house could be your very own soon.
What happens when you opt for a short tenure and pay out heavy EMIs is that you may not be able to create alternate savings. You may not have enough left to invest and build assets. Hence, the borrower may be deprived of the comfort cushion of financial assets that he could sell and use if the need arises. In the future, if a critical situation arises where you need to borrow money, it may not be possible.
