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The length of time you have to repay your loan is referred to as the loan duration. Personal loans, business loans, vehicle loans, student loans, and home loans are just a few of the types of loans that have a loan tenure.
What is your age?
The first and most essential consideration is your age at the time of the loan. Your age at the time of the loan also plays a role in determining the loan term. If you’re in your twenties or thirties, you might consider a 20- or 25-year loan. However, if you are in your 50s and nearing retirement, you will be unable to obtain a long-term home loan. It is prudent and safe to pay off all of your EMIs before retiring. Extending your EMI payment over your retirement age is a risk that you should avoid.
Your earnings
The second most crucial factor that impacts your ability to pay EMI on your house loan is your gross monthly income (and, of course, your expenses!). If you take out a short-term home loan, your EMI will be high; if you take out a long-term home loan, your EMI will be low. Some people, in their haste to be free of debt, take out a short-term loan and bear the burden of a high EMI. Your EMI will take up a significant portion of your monthly money. As a result, accepting a loan with a high EMI is a significant risk. Furthermore, if the interest rate rises, your EMI will rise as well, potentially putting you in financial trouble. Unexpected financial obligations (such as paying medical bills for family members or paying expensive fees for your children’s school) can wreak havoc on your ability to pay high EMIs at the same time, putting you in a difficult situation.
What is your goal?
You may have noticed that your EMI includes both the principal loan amount and interest when calculating your EMI. You should be aware that the amount of interest payable on a house loan is determined not only by the rate of interest but also by the loan period. If you take out a long loan, the amount of interest you pay will be large; on the other hand, if you take out a short loan, the amount of interest you pay will be low. In a nutshell, short-term loans are inexpensive, whereas long-term loans are costly.
If your goal is to resell the house for a profit, a shorter loan period will provide a better return on investment than a longer loan term.
You have the option of taking out a long or short-term loan:
Long-term home loan advantages
The following are some of the advantages of long-term house loans:
A higher level of eligibility
Home loan eligibility is determined by the borrower’s ability to repay the loan in the form of EMIs. The monthly repayment amount is calculated as a proportion of the borrower’s monthly income. With a longer period, the EMI is lower, and the disbursal amount is higher than with a shorter term. Home purchasers might choose a nicer and larger home with higher home loan amounts.
Repayment flexibility
The lending organisation does not charge a penalty if a borrower wants to pay off their home loan early. Depending on whether the interest rate is fixed or fluctuating, the Prepayment option has two alternative requirements.
EMI payments are lower.
The EMI lowers as the loan term lengthens, i.e. with a fixed interest rate, the monthly payment amount falls as the loan term lengthens.
Advantages of a short-term house loan
According to studies, paid adults between the ages of 25 and 45 are best suited for a home loan with a lengthier term. It’s also useful for self-employed professionals between the ages of 30 and 40. A home loan with a longer term allows younger people to purchase a property sooner and enjoy additional benefits such as tax exemptions and tax rebates under Section 80C while repaying the loan. The following are some of the advantages of short-term house loans:
Short-term home loans often have a period of 10 to 15 years or less, allowing borrowers to get out of debt quickly and own their home in their own name.
Because of the tiny loan amount, short-term house loans are disbursed quickly and with minimal documentation.
The EMI amount is often higher for short term loans because the payback period is shorter, but the overall interest charged on the loan is lower.
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