- Date : 11/07/2023
- Read: 3 mins
When you avail of a home loan, you can choose a repayment tenure stretching over 30 years and sometimes even higher. However, do such longer tenures make sense or a short-term loan is more beneficial?
- Home loans involve a considerable amount, which is why longer repayment tenures are allowed.
- The repayment tenure directly affects the EMI. The longer the tenure, the lower the EMI and vice-versa.
- You can choose a long-term home loan for affordable EMI payments and enjoy its tax benefits longer
- A longer tenure also involves a higher interest payment.
A home loan has become an easy solution to fund your dream home. Whether you want to buy a house, a plot of land, or simply redecorate, this loan can finance the expenses.
Home loans come with longer repayment tenures, going up to 35 years. The loan repayment tenure directly impacts the loan EMI (Equated Monthly Instalment). The higher the tenure, the lower would be the EMI and vice-versa. Borrowers usually opt for long-term home loans for affordable EMIs. But do they really make sense?
Let’s analyse.
Long-Term v/s Short-Term Home Loan
Here’s how home loans compare on their corresponding repayment tenures:
Pros and cons of long-term home loans
Pros:
The lower EMI is obviously one of the primary benefits of choosing a long-term home loan. However, besides the EMI, there’s one other factor that works in favour of longer tenures – the tax aspect.
Home loans attract tax benefits under Section 80C and Section 24 (b). While Section 80C allows a tax deduction on the principal repaid (up to ₹1.5 lakhs), Section 24 (b) allows tax benefit on the home loan interest paid (up to ₹2 lakhs). You can claim the tax benefit for every financial year when the loan is active.
So, when you choose a long-term loan, you enjoy longer tax-saving benefits. Moreover, you might be able to get a higher loan quantum since the EMIs become affordable.
Also Read – Ways to reduce home loan EMIs
Cons
Interest is payable throughout the loan repayment tenure. As such, when you choose a longer tenure, you pay an additional interest outgo compared to shorter tenures.
Pros and cons of short-term home loans
Pros:
Short-term home loans are paid off early and you can claim the complete ownership of your home. The interest outgo is lesser helping you save on the additional cost.
Have a look at the interest saving in this example-
Just a 10 year reduction in tenure and you save around ₹32 lakhs in interest!
Cons:
The EMI amounts are higher, which might prove unaffordable. Plus, you also lose out on the tax benefits once the loan is repaid.
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What should you do?
When availing of a home loan, always assess your affordability. Calculate the tentative EMI of the loan corresponding to a particular tenure. If the EMI is low and you can afford to pay more, lower the tenure and save on the interest. On the other hand, if you want the EMIs to be lower, choose long-term loans.
Also Read – Know whether it is a good time to get a home loan as interest rates rise
