If you do not own a house, buying one would surely be your dream. But the finance to own that specific dream house gives you moments of thoughts and procrastination. After the initial thoughts loaning seems like a great option. But then, various factors determine the success of home loans, such as their tenure, monthly EMIs, interests, and others. All of these factors can have an immense effect on your pocket. Loan tenure and age of the borrower tend to have a proportional relation. So, finance advisors suggest taking a loan with lower loan tenure to people close to their retirement age. But you must check out the factors mentioned below before you decide on your loan tenure, or else you might play in the hands of the system.
Let us discuss the factors affecting your loan tenure:
- Borrower’s age: Age is the first and most important factor related to loan tenure. In your mid-20s to early 30s, you should go for a tenure of around 30 years. This helps you balance your expenses as well as the loan amount. Lower EMIs and maximum tenure simplify everything for you. But if you can manage large EMIs, then shorter tenures make you free from the whooping loan amount early.
People near their retirement should go for a short loan tenure as loan lenders want a surety that the amount lent is back to them on time without any restrictions.
- Loan Amount:Total amount and tenure do influence each other. Let us consider the loan amount is 8-10 times the monthly income, so you should choose long tenure. This way you can easily pay the amount. But if the loan amount is just 3-4 times your monthly salary, you should take a short tenure loan. If you choose a long tenure, it will unnecessarily increase your interest payable. You can choose a suitable loan amount according to the monthly salary, expenses, and savings. Choose for whatever suits you best, keeping in mind the analysis to save some extra money with just a little calculation.
- Total Interest: The loan tenure and the interest rate are directly proportional to each other. As the calculation behind interest on principal amount is annual. So, if the tenure is for a longer period, the interest also increases annually. Simply, the longer the tenure, the more will be the interest. You can go for a short loan tenure to reduce the interest amount. Also, if you are financially stable in the future, you can begin with lower EMIs and pay the full amount before completing the tenure of the home loans. This way, you will be able to save the interest amount.
Apart from these tips and tricks, you can also do some personal finance changes in your monthly expenses, like controlling unwanted expenses. Keep track of your monthly budget and keep everything unnecessary aside, at least until the payment of the loan amount. Also, know your income in the present and the future to have a rough estimate of how to pay the loan amount.