Choose Tenure Based On Age, Income And Loan Amount

Author: zameensantosh

Kavita Sriram has some tips to help you arrive at the tenure best-suited to you
Tenure is the period or duration for which a loan amount is sanctioned. Borrowers might feel like taking the shortest possible loan tenure ideally. However, do not rush for the shortest loan tenure. It may appear enticing to pay off your home loan debt in the shortest possible time span. However, a short tenure loan translates into very high EMI dues month after month. The borrower must remember that he has other financial commitments - usual monthly expenses - and must not stop saving during the repayment period.
So, what is the ideal loan tenure?
Consider different EMI outflows for various loan tenures. Will you be comfortable paying the EMI, yet have enough to meet all other financial commitments and emergencies? Freeze on the tenure for which you can pay the EMIs without a major financial stress.
Consider these parameters before deciding on the loan tenure:
Is the amount high?
If the homeowner has borrowed a huge sum of money, the EMI outflow would be high. Hence, to make EMI repayment comfortable, the borrower may have to go for longer loan tenure. Longer the loan tenure, lesser is the EMI outflow.
Consider a loan of Rs 50 lakhs borrowed at 12 percent interest. If the tenure is 15 years, the EMI outflow would come to around Rs 60,000. If the loan amount was lesser, say Rs 25 lakhs at 12 percent interest, the EMI outflow for tenure of 15 years would be around Rs 30,000. If the borrower can afford to take a shorter tenure loan, of say 10 years, his EMI outflow would be around Rs. 36,000.
Purpose of buying property
If the borrower has purchased the property solely as an investment, he would like to sell it off when he gets a good deal. In such cases, most buyers prefer to keep the loan tenure as short as possible. This way they need not pay any penalties towards prepayment or exiting the loan before end of tenure.
Those who have purchased the property only to live in it may prefer longer loan tenures. They may not be very keen on very short loan tenure. Further, they benefit from tax deductions on their home loans. However, borrowers must keep in mind that longer the loan tenure, greater is the associated cost of borrowing.
Age of borrower
A person close to his retirement years will not be eligible for a long tenure loan. A middle aged person who is making good money may prefer repaying the loan before he retires. A young borrower who has recently started working may not bring home a huge income. His income level may go up as the years pass by. He should opt for longer loan tenure as he has many years ahead to work and clear his debt.
Income
A person with greater disposable income can pay off his debt faster than a person who earns lesser. If the borrower has higher income, he can pay higher EMIs and clear his debts faster.
A person having greater financial commitments, other debts or a lower income may find repaying his debt a big challenge.
A borrower's current income level and expected increase in income are factors that can influence the loan tenure. Interest rate fluctuations are difficult to predict.
The impact of increase in interest rates could be hard if the borrowed amount is high. Whenever you have excess funds, partially prepay the loan. This way, a borrower can clear his debt faster.

Courtesy: - Times Property DT: - 03-April-2010

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