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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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When you avail a home loan, you get the option to repay it in easy installments or EMIs. The value of EMIs is based on your interest rates, loan amount, and tenure. The lender determines your interest rate after considering your age, profile, income, etc. However, you are allowed to choose a tenure that is financially viable for you.
You must know that your tenure can significantly affect your EMI value. Therefore, experts believe that you must consider all factors before choosing a tenure for you.
Here are some tips that can help you determine your home loan tenure.
The tenure of your loan should depend on your age. If you are in your 20-30s, it would be better to opt for a longer loan so that you get lower EMIs. You might have just started your earning life, plan to settle down, and start a family. At this time, you could have higher monthly expenditures. Opting for a longer tenure can help you repay the loan and also manage your other life goals comfortably. However, if you can afford a lower EMI along with other expenses, a shorter loan can help you repay the loan faster and save money.
On the other hand, if you are in your late 50s, and are nearing retirement, opting for a shorter loan can be beneficial. If you opt for a longer tenure, the lender can doubt your repayment capacity and reject your application. Moreover, it is better to opt for a tenure in which you can repay the loan in your earning life.
The longer the tenure, the higher the interest will be. Therefore, you must consider the prevalent interest rates while determining your tenure. If you can afford high EMIs, you can opt for a shorter tenure to save on the interest cost. The interest outgo is calculated by multiplying the tenure with the interest rate. Therefore, the total interest burden is more when you opt for a longer tenure. Even if you opt for a longer tenure, you can prepay and save on interest outgo.
The loan amount you avail should be in accordance with your income. If you take a loan amount that is substantially higher than your income, it would be better to opt for longer tenure so that you can comfortably repay the amount. However, if you have availed a small loan amount, you can opt for shorter tenure and save on interest costs. You must consider your financial standing while deciding on the tenure based on your income.
It is crucial to ensure that the tenure you choose should not put a strain on your finances and daily expenses. You should be able to comfortably repay the loan. Assessing your income and expenses can help you determine the loan amount. Also, a home loan calculator can help you opt for a suitable tenure and check your affordability.
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