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Determining the Maximum Tenor for Your Home Loan: A Practical Guide

The feasibility of a Home Loan and the ease with which you will be able to repay it depends on three key factors: loan value, Home Loan interest rate and the loan tenor. 

Loan value or principal refers to the loan amount you borrow from a lender to help you afford your dream home. The Home Loan interest rate refers to the rate of interest that your lender charges on the principal amount for offering you the privilege to use the loan amount and the loan tenor refers to the number of years one needs to comfortably repay their loan. Home Loan applicants must choose the loan amount and loan tenor very carefully and make the best efforts to secure the lowest Home Loan interest rates possible. 

The maximum tenor for Home Loans used to be 30 years. However, some lenders have extended the maximum tenor for Home Loans to 40 years. Such a long repayment tenor can help you manage loan repayment, especially if the loan amount is quite high. However, a long tenor also automatically increases the cost of borrowing the loan by increasing the total interest payout on it. Therefore, borrowers must choose their Home Loan tenor carefully. 

If the loan amount is too high and reducing the loan tenor will lead to your Home Loan EMIs becoming difficult to repay, it is recommended that you opt for a long tenor and feasible EMIs and not risk defaulting on loan repayment. Loan defaulters not only attract late penalties, but they can also lose ownership of the pledged property if they default on loan repayment for an extended period. Loan defaulters have a low CIBIL score and therefore, find it quite challenging to get access to credit when needed. However, if you have high repayment capacity and can afford to pay high loan EMIs, it is always a good idea to keep the loan tenor short and become debt-free as quickly as possible. 

All Home Loan borrowers are not always able to get the loan tenor they desire, primarily because the Home Loan tenor that one gets offered on a Home Loan also depends on several different factors. Let us look at the factors that affect the maximum tenor for Home Loans that one can get. 

Factors that Affect the Home Loan Tenor

  1. Age: The maximum tenor that an individual can get on a Home Loan depends greatly on their age. Most lenders set the maximum age at 65 for salaried individuals and at 75 for self-employed individuals. Borrowers must keep in mind that the maximum age is always the age of the borrower at the time of loan maturity and not at the time one is applying for a loan. Young borrowers are easily able to avail themselves of the maximum tenor for Home Loans that a lender has to offer. On the other hand, people nearing retirement often find it difficult to get approved for a long-term loan. 
  2. Loan Amount: The loan amount that a borrower opts for also helps lenders decide the loan tenor to be offered to them. Individuals opting for a high loan amount are often asked to opt for a long repayment tenor to ensure affordability and ease of repayment. On the other hand, borrowers opting for a small loan amount get the freedom to choose between a short and long tenor, based on their needs. 
  3. Debt-to-Income Ratio: Your lender will also take into account your debt-to-income ratio while deciding the loan tenor to be extended to you. If a considerable portion of your monthly income is already going towards loan repayment, you will be asked to opt for a long Home Loan tenor so that repayment does not become stressful at any point during your Home Loan journey. 

Concluding Remarks

A Home Loan is a long-term commitment and therefore, borrowers must choose their tenor smartly. Paying your loan EMIs comfortably and without defaulting is far more important than reducing the total cost of borrowing the loan or saving on the total interest payout. More importantly, if you are planning to apply for a housing loan, use a Home Loan eligibility calculator to figure out the loan amount you are eligible for and the Home Loan EMI calculator to select the right combination of loan value and loan tenor for you. Borrowers must also never sign the final Home Loan offer letter until and unless they understand and agree with all the terms and conditions mentioned in the letter.  

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