While choosing the tenure of home loans, we come across the dilemma of which span or tenure to choose from. After you have chosen which bank to take the home loan from, the interest rates and the loan amount, this becomes a burning question. Let us see what can be done in this regard.
The affordability of the loan
This factor totally depends on the salary or flow of the income through which you will be able to repay the home loan. Other monetary functions might get hampered if one wishes for an early repayment of their loan which, eventually will create a lot of pressure on your income. The internal credit guideline of any bank will always check whether the FOIR or Fixed obligation to Income Ratio is not set beyond a certain limit which is usually 40 to 45%. If one has the tenacity to push their financial boundaries and opt for a lower tenure with a higher EMI, then they should be prepared to pay up accordingly instead of making other investments.
Home loan requirement
The loan eligibility needs to be increased if one is to consider taking it for a long tenure. The bank can only lend you only as much as your capacity for repaying the loan in the form of EMI. Sometimes it can feel forced if you have to take a loan of an amount that is higher than your requirement but maybe that is the amount that can be repaid in a longer tenure that is chosen.
Retirement
Not that it is impossible, but it would be wise if one does not take on the liability of having to repay a home loan even after one retires. Ideally, the home loan tenure should get over before one retires. In most cases, a bank will check before providing an individual the benefit of repaying the loan even after retirement, provided they have a steady source of income.
Tax benefits given and bonuses
Many borrowers prefer to keep their home loan tenures for long in order to enjoy tax benefits that are prescribed under Section 80C and Section 24 of the Income Tax Act. Instead of prepaying their loan, they pay it as and when it is time which can totally be a personal preference for any borrower. On the other hand, floating rate home loans can be prepaid with the bonus or windfall gains that one gets. No prepayment penalty is incurred in this case and cut short the tenure of the home loan.
It is advisable that you consider all these factors in equal proportion and thoroughly understand their impact before making a final decision.
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