Short Term and Long Term Home Loan - Which One is Better? - Home Loan Stories | Kotak Mahindra Bank

16 JUNE, 2021

When availing a home loan, it’s imperative that you decide on your home loan tenure carefully. This is because the tenure of your home loan would determine the monthly EMI outgo and total interest pay-out. You can either opt for a short-term or a long-term home loan to finance your property purchase.  Whether to opt for a short-term or a long-term loan depends upon a few factors enlisted below:

  1. Monthly income

Your monthly instalments depend upon the home loan tenure. A long-term home loan would mean lower EMIs, whereas a short-term home loan would lead to comparatively higher EMIs. Make sure that your EMIs are affordable, and do not exceed 30-35% of your monthly income. This will help you repay your home loan with ease and meet other expenses without any hassles.

  1. Age

Your age plays a crucial role in deciding whether to choose short-term or long-term loan. If you are in your 20s and have just started your career, you can consider availing a long-term home loan. Your monthly income is more likely to increase as you gain professional experience, and this can help you repay your loan with ease. On the other hand, if you’re already in your late 40s or early 50s, you will have no other option but to opt for a short-term home loan. This is because banks provide home loans only till the retirement age or for tenure up to 20 years.

  1. Rate of Interest

Before you pick a long term or a short-term home loan, make sure to check if the rate of interest is fixed or floating.  A fixed rate of interest does not change irrespective of what the market rates are. However, a floating rate fluctuates basis the market trends. Interest rates on short-term loans can be lower than as compared to long-term home loans as the lenders have a lower risk and high EMIs in a short duration loan, compared to the other possibility.

  1. Objective of the purchase

If you wish to purchase the property with an investment objective, opting for a short-term home loan would be a better option. Whereas, if you are buying a house for self-use, you can go ahead with a longer repayment tenure. This will lower your home loan EMIs, and consequently, reduce the risk of default. Thus, you can comfortably reside in the house while making the home loan repayment.

Keeping these points in mind, you can understand the risk involved in opting for a long-term as well as a short-term home loan. Want to get over the burden of paying EMIs sooner? Choose a short-term home loan. However, be ready to pay higher EMIs although, with a reduced overall interest amount. On the other hand, go for a long-term home loan if you cannot pay higher EMIs. While the interest paid will increase, you can pay smaller EMIs.

To sum it up, you must choose a home loan tenure that suits your repayment capacity! A home loan is a secured loan, wherein the purchased property acts as collateral. Therefore, in case you default on your home loan, the lender may seize your property to recover the loss incurred. Opting for a tenure that makes your EMIs affordable will reduce the chances of default. You can also get an estimate of your home loan EMI with the help of an online EMI calculator.

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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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.