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Choosing the right home loan tenure is as important as choosing a suitable interest rate for the loan. Just as we focus on repayment and prepayment schemes, it is necessary to devote attention to choosing the right tenure for much of your finances depend on it. Since interest rates have shown trends of being on the rise, choosing a proper repayment tenure has become even more urgent. Several factors are at play when you decide to go for a home loan and the period you wish to extend it for. It will do you good to seek advice from experts and conduct research on how to select the right home loan tenure.
Age as the key factor
The foremost important factor in choosing your home loan tenure is age. The younger you are at the time of applying for the loan, the higher the tenures that will be available for you. This means that if you decide to apply for the loan when you are thirty years old a maximum of twenty years will be allotted to you to pay it off. Twenty years is also the maximum tenure provided by most lending institutions to repay a home loan. There are a handful of institutions that offer twenty five years of home loan tenure but these institutions are only an exception. Most lending institutions have an eligibility criteria in place. This criteria sets the age of retirement as sixty years in case of salaried individuals and sixty five in case of self-employed individuals.
How EMI schemes fluctuate
It is important for a borrower to be aware that during the course of the home loan tenure, interest rates may fluctuate depending on the ongoing trends of the market. Such fluctuations may affect the home loan EMI that you are paying. These changes will invariably come in whether you had signed up for a fixed interest rate loan or a floating interest rate one. If you are relatively younger you may get approvals on extension of home loan tenure. The maximum extension in such a situation will become five years. However, if you are forty years of age or above, your only option will be to increase the monthly EMI amount which could increase your financial burden substantially.
The problems associated
It is ideal to take into account all of these fluctuations during the course of the home loan tenure when you choose it because at the age of forty increasing the monthly EMI amount can be quite challenging. This is because at this age the percentage of increase in your potential income is way lesser as compared to what you could have expected when you were younger.
Other benefits of younger age
If you are younger your eligibility for loans is also much higher. Even though current income is what is taken into account when sanctioning a loan, the potential of increase in income also plays a key role. You have the option to opt for top-up loan to meet your personal requirements or even handle an increase EMI than what you had chosen in the beginning. When you are younger you are also given more repayment options. One of them is the step-up repayment facility, abbreviated to SURF where you can pay a low EMI during the initial period and increase it at your convenience at a later period. This is most suitable for a young borrower who has just begun his financial journey and is slowly climbing the professional rungs in his life. However, you must note that these facilities are only available for borrowers of a young age.
Impact of changed rates with the option of tenure increase
In order to better understand this situation, one may take the instance of a thirty year old individual who takes a loan of rupees thirty lakh with an interest rate of 9%. The home loan tenure, in this case is twenty years and the individual earns rupees fifty thousand per month. With changes in market trends the interest rate may go up to 11%. However, since he started the loan at thirty years of age he has the option of extending the tenure for another five years. This will normalize the EMI cost even after an increase in interest rate. Additionally, during this time his monthly salary is also expected to increase.
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