Choosing the Ideal Tenor for Your Home Loan: Expert Advice

Home loans are a smart, safe and convenient way to buy a home, especially when you don't have enough funds to purchase your dream home. Under a home loan, lenders sanction up to 80% of a property's value as a loan. The remaining amount is to be paid by the loan borrower in the form of a down payment. 

The loan borrower repays the loan in the form of easy-to-pay home loan EMIs spread over a loan tenor that one finds acceptable. The process to apply for housing finance is however tricky and long. The entire home loan process can take up to 4 weeks. Further, the loan disbursement process itself can take up to 2 weeks. 

So, borrowers must prepare their timelines accordingly. While talking to their builder, they must always keep some buffer time. More importantly, since home loans are a long-term commitment, one that easily lasts a few decades, borrowers must be very careful about choosing the right home loan amount and tenor otherwise a home loan can easily become a liability. 

In this article, we talk about how to choose the ideal tenor for home loans and also discuss some things that borrowers must keep in mind when availing of these loans. 

How to Select the Ideal Tenor for Home Loans

The home loan tenor that you choose will not only affect your home loan EMIs but also the total cost of borrowing money as well as the total interest you will need to pay on your loan. However, any loan borrower must decide on the ideal home loan tenor for them after first taking into consideration their repayment capacity and then the total cost of borrowing money. In many cases, borrowers opt for a shorter tenor to reduce the interest outgo and the cost of borrowing funds. This often leads to unaffordable EMIs that can easily begin to feel burdensome. 

In short, borrowers must always focus on keeping their loan EMIs affordable, even if it means paying a slightly higher rate of interest. Making one's EMI unaffordable to reduce the total cost of borrowing money can lead to the borrower defaulting on loan repayment and attracting hefty penalties, inevitably increasing the cost of borrowing money. More importantly, a delay in loan repayments and loan defaults can negatively impact a person's credit rating and ability to get approved for a loan on beneficial loan terms and conditions in the future.

However, if a loan borrower has a high repayment capacity and can afford to pay high loan EMIs, they must take on the burden of high EMIs to save on interest as well as become debt-free quickly. 

Important Things to Keep in Mind When Availing of a Home Loan

Now that we know how to decide the ideal tenor for home loans, let us walk the readers of this article through the things that loan borrowers must keep in mind while availing themselves of a home loan. 

1. All loan applicants must always use online calculators, such as the home loan eligibility calculator, home loan EMI calculator, and home loan prepayment calculator, to decide the right amount for them, and the loan amount they are eligible for and set their loan repayment strategy. These calculators can make applicants' lives a lot easier. 

2. Securing the lowest home loan interest rates is of utmost importance. Securing a low rate of interest becomes easier when the loan applicant has a high CIBIL score (i.e. at least 750 or above), a debt-to-obligation ratio or FOIR below 40% and a stable job and income. Opting for a low LTV ratio allows loan borrowers to easily negotiate for a low rate of interest on one's home loan. 

3. Lastly, if you are planning to apply for a home loan, make sure to set aside an emergency fund. Life is unpredictable and unforeseen circumstances can arise any day. Therefore, it is always good to prepare yourself for the worst that can happen. Setting aside an emergency fund will allow you to meet your EMI obligation during a financially difficult period and make your life much easier. 

4. Lastly, read about the home loan balance transfer facility. These days, home loan borrowers can transfer the remaining balance on their home loans to another lender by opting for the home loan balance transfer facility. In the majority of cases, people go for a home loan balance transfer to switch to a lower interest rate home loan. If that is your motive, make sure there is at least a 25 bps difference in your current and new home loan interest rates. Further, consider all the charges and costs involved when choosing to opt for this facility.