Compare Home Loan Interest Rates to Pick the Best Tenure for You
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With more people choosing to invest in residential properties, India’s residential real estate market is predicted to grow by 6% and above. Since prices are also on the rise, home loans are a popular finance solution used by aspiring home buyers.
While for many, buying a home is a dream, it provides much more than aspirational value. Apart from obvious benefits such as increased affordability, taking a home loan comes with value added benefits. Few such are tax deductions, a boost in credit score and saving on rent.
Whatever your goal is behind buying a house, it is imperative to adequately prepare before going in for a home loan. Make sure you compare home loan interest rates, check home loan eligibility, and pick an EMI amount you can comfortably pay.
Keep reading to know more.
How to Choose a Home Loan Tenure that Suits You
First things first, there is no such thing as the best home loan tenure. The ideal tenure varies based on your homebuyer and their repayment capacities. As such, it largely depends on factors such as your monthly income, expenses, retirement, and financial goals.
First things first, there is no such thing as the best home loan tenure. The ideal tenure varies based on your homebuyer and their repayment capacities. As such, it largely depends on factors such as your monthly income, expenses, retirement, and financial goals.
To get the most suitable home loan tenure, follow these easy steps.
1. Check home loan eligibility
The first step is to shortlist a property or a housing project you want to buy. Then, you can use a home loan eligibility or EMI calculator to assess its viability. The latter allows you to calculate your monthly EMI, for different tenures at varied interest rates. A quick assessment also informs you of the loan amount you are eligible to avail, based on factors such as age and income levels.
The first step is to shortlist a property or a housing project you want to buy. Then, you can use a home loan eligibility or EMI calculator to assess its viability. The latter allows you to calculate your monthly EMI, for different tenures at varied interest rates. A quick assessment also informs you of the loan amount you are eligible to avail, based on factors such as age and income levels.
2. Compare home loan interest rates
Various lenders offer home loans at competitive rates, aimed at meeting the nuanced needs of home buyers. Currently home loan interest rates range from 6.50% to 13%, which varies between lenders.
Various lenders offer home loans at competitive rates, aimed at meeting the nuanced needs of home buyers. Currently home loan interest rates range from 6.50% to 13%, which varies between lenders.
However, regular home loans have fairly similar rates, while specialised loans such as NRI home loans and plot loans have high interest rates.
3. Inquire about corporate tie-ups with lending institutions
If you are a salaried individual, you can check with your employer for any corporate tie-ups with lenders. These usually allow you to avail a home loan at a concessional rate.
If you are a salaried individual, you can check with your employer for any corporate tie-ups with lenders. These usually allow you to avail a home loan at a concessional rate.
4. Account for the loan repayments in your long-term financial plan
Once you check home loan eligibility and estimate your monthly EMI payouts, you can check the feasibility of making regular payments over various repayment horizons. It also lets you plan for future payments with regard to your other investments and assets.
Once you check home loan eligibility and estimate your monthly EMI payouts, you can check the feasibility of making regular payments over various repayment horizons. It also lets you plan for future payments with regard to your other investments and assets.
5. Determine a suitable home loan tenure
Finally, you are equipped with an understanding of how much interest you would incur over repayment tenures, and how it affects your investment portfolio. You can now make an informed decision and apply for a home loan, based on your eligibility.
Finally, you are equipped with an understanding of how much interest you would incur over repayment tenures, and how it affects your investment portfolio. You can now make an informed decision and apply for a home loan, based on your eligibility.
Comparison of Home Loan Interest Rates for Different Tenures
Home loans are usually available for longer periods such as 20 or 30 years, as this allows you to repay the loan without adding much strain on your income. However, a short-term loan means that you will end up saving on the total interest payable on the loan.
Home loans are usually available for longer periods such as 20 or 30 years, as this allows you to repay the loan without adding much strain on your income. However, a short-term loan means that you will end up saving on the total interest payable on the loan.
Here is a comparison between a short-term loan of 5 years and a long-term loan of 15-30 years.
Short-Term Home Loan | Long-Term Home Loan | |
Tenure | 5 years or less | More than 5 years, typically around 15, 20 or 30 years. |
Interest Rates | High interest rates due to shorter tenure | Lower interest rates due to a longer repayment period |
EMI Amount | The monthly EMI payout is higher, however, the interest element is lower | EMI amounts are much lower, however, the interest outgo is much higher as you are repaying for a longer period |
Principal Loan Amount | Due to short repayment periods, only smaller amounts are processed | Since the repayment horizon is longer, this allows for the approval of higher loan amount |
In theory, if you buy a house before turning 28 years old, it allows for a 30-year tenure and a higher loan amount. This lets you take full advantage of a lower EMI and higher loan amount based on the tenure.
However, buying a house later in life also has its merits, allowing for higher loan amounts which can be paid off in shorter tenure periods.
Factors to Consider While Choosing a Home Loan Tenure
While a lender checks the home loan eligibility of an application, the following factors usually determine the interest rate and loan tenure:
Age:
The minimum age limit to get home loan approval varies between 21 and 25 years, depending on the lending institution. Likewise, the maximum age limit, at the time of loan maturity, varies between 60 to 70 years.
The minimum age limit to get home loan approval varies between 21 and 25 years, depending on the lending institution. Likewise, the maximum age limit, at the time of loan maturity, varies between 60 to 70 years.
Loan Amount:
With a higher loan amount in comparison to your income, you may have to opt for a longer tenure to lessen the financial strain.
With a higher loan amount in comparison to your income, you may have to opt for a longer tenure to lessen the financial strain.
Current and Future Income Levels:
If you expect to earn more over the foreseeable future, you can choose a shorter tenure keeping that in consideration or factor prepayments into your plan.
If you expect to earn more over the foreseeable future, you can choose a shorter tenure keeping that in consideration or factor prepayments into your plan.
Existing Debts:
If you have existing debts and obligations, your loan eligibility itself may get affected. If approved, you may have to opt for a lower loan amount and longer tenure.
If you have existing debts and obligations, your loan eligibility itself may get affected. If approved, you may have to opt for a lower loan amount and longer tenure.
It is important to thoroughly compare home loan interest rates available in the market before making a decision. However, your due diligence should also include:
• Tax planning
• Benefits of having a co-applicant
• Checking the concessional rates available to women borrowers
• Seasonal offers
• Builder offers
• Benefits of having a co-applicant
• Checking the concessional rates available to women borrowers
• Seasonal offers
• Builder offers
Apart from this, pick a loan amount you need, rather than what you want. Keep in mind the effects of a missed or delayed EMI payment on your credit score. Finally, don’t overestimate your ability to afford these payments in the long run. Your goal should be to pay your dues on time and do so in the most cost-efficient manner possible.
Disclaimer: No Business Standard Journalist was involved in creation of this content
Topics : Home Loan
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First Published: Aug 28 2023 | 6:20 PM IST