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08 DECEMBER, 2021
When you apply for a home loan, lenders allow you to choose your tenure. The tenure is the entire period in which you can repay the loan. Once you choose the tenure, the lender considers other factors and accordingly, your EMI is fixed. You have an option to opt for a short or a long tenure. However, this choice could be confusing. Experts recommend that long-term housing loans are a better option. Let’s look at the reasons.
When you opt for a short tenure, your EMI is higher, and you have fewer years to repay the loan. Lenders often consider it risky to approve a high loan amount for a short tenure as borrowers could skip EMI payments.
On the other hand, with a long tenure, you have ample time to repay the loan. You can avail a higher loan amount and even negotiate on the interest rates with the lender. With a higher loan amount, you can buy a bigger house.
Availability of tax benefits on home loans is one of the best ways to reduce taxability and save money. As per section 24 (b) of the Income Tax Act, 1961, you can claim a tax benefit of up to Rs 2 lakh on the home loan interest repayment. Longer tenure would mean that you could claim the tax benefit on interest repayment for a longer period. Similarly, you can claim a tax benefit on the principal repayment under section 80C. With the long tenure, you can avail a higher loan amount and thus more tax benefits.
Longer tenure helps you repay the loan in small chunks of money. You can use a home loan calculator to find a suitable EMI for you based on the loan amount and tenure. With a small EMI, you need not compromise on other expenses and instead pay your loan in small comfortable monthly instalments.
When you have a longer tenure, you have more time to adjust your EMIs with your income. You can start with a low EMI when your income is less and further request for restructuring of the loan terms. The lender can increase your EMI as per your financial comfort. Moreover, with long tenure, you also get the chance of prepaying the loan when you have additional funds. You can pay a part of the loan amount or the entire repayment amount before the end of the tenure. Prepayment is a viable option to reduce debts; especially if you have floating home loan interest rate as there are no prepayment charges on them.
A longer tenure gives you more time to repay the loan and saves you from shelling out heavy monthly instalments. However, you must also know that a longer tenure can increase the mortgage period and the interest outgo. So, while experts recommend opting for a longer tenure, you must assess your financial viability before choosing the loan tenure.
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