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What is the ideal Home Loan Tenure?

Home Loan Tenure
Home Loan Tenure

Home Loan Tenure is one of the most crucial decision making factor during Home Loan Process. Home Loan Tenure has a direct impact on your cost of borrowing. In turn, the cost of borrowing increases your overall cost of the property. I receive many queries on what should be the ideal Home Loan Tenure?. There is no standard answer to this query. As a borrower, you need to arrive at the optimal value which should be a fine/comfortable balance between your current financial condition and your Home Loan requirement. The home loan providers i.e. banks/HFC’s push for longer home loan tenure as it is financially beneficial for them. The best sales pitch is that EMI is low for 30 year Home Loan compared to 20 year Home Loan. A typical human psychology is that lower EMI means lower cost of borrowing or less burden on the pocket. It is not true at all.

Factors which influence Home Loan Tenure

(a) Home Loan Amount: Normally longer Home Loan Tenure is offered to increase the Home Loan Eligibility. Nowadays banks offer even 30 years Home Loan. Earlier 20 years was the max Home Loan Tenure. ICICI Bank Extraa Home Loan is customized product with longer home loan tenure to increase the eligibility. Normally HFC’s and Private Banks are lenient in fixing Home Loan Eligibility compared to PSU Banks. Therefore, if the eligibility is a key concern then you may avail Home Loan from Pvt sector banks to keep Home Loan Tenure short.

(b) Home Loan Interest Rate: Assuming all other factors are constant, lower interest rate means shorter Home Loan Tenure.

(c) EMI: If a borrower keeps Home Loan EMI low then it will increase the Home Loan Tenure. Normally borrowers prefer to keep EMI as low as possible so that they need not compromise on the existing lifestyle. From a personal finance perspective, it’s a wrong strategy. We will check how to maintain a fine balance between the two.

(d) Age of a Borrower: Normally max Home Loan Tenure is 60 years minus the current age of a Borrower. If my age is 42 years then max Home Loan Tenure should be 18 years. In my opinion, if the Home Loan Eligibility is not a concern then the borrowers can simply ignore this factor.

Is the longer Home Loan Tenure Bad?

As i mentioned that longer Home Loan Tenure increase the cost of borrowing. In layman terms, you pay more interest for 20 years home loan compared to 15 years. Now assuming you bought a property for 50 lacs and paid interest of 35 lacs then your cost of the property is 85 lacs instead of 50 lacs. The higher cost of property means lower ROI from the property. I explained it in detail in my post, 5 Disadvantages of Home Loan. Therefore, i always caution my clients who buy property on Home Loan for investment purpose. Though the decision is very subjective as you also need to consider a tax deduction.

The second reason is that longer Home Loan Tenure may interfere with your financial goals in life. As a thumb rule, you should plan Home Loan in such a way that you will close it before your kids join college. The major expenses start from this point and will last till the marriage of a child. This cycle is of min 10 years, therefore, any additional burden like Home Loan EMI may impact your financial goals.

Lastly, we should always keep in mind that life is uncertain. We should leave an asset behind for our loved ones rather leaving liabilities. I have seen some of my clients struggling to pay off the debt after the death of a borrower. In such cases, An asset becomes the biggest liability. Though i agree that we cannot take a home loan for 2 years as it is long term liability. We can make an attempt to finish this liability asap.

How to find out ideal Home Loan Tenure?

This magical number will be different in each case but do remember following golden rules for shorter Home Loan Tenure.

(a) Home Loan EMI should be 50% of net household take home salary. If your spouse is also working and assuming both are drawing equal salary then you may consider 100% of your take home salary as EMI i.e. 50% of net household take home salary. You should increase your Home Loan EMI every year after you get annual salary increment. This adjustment should ensure that your EMI is 50% of net take home salary. In many cases, i observed that after few years EMI is just 30% of net take home salary due to an increase in salary. A common justification is that we will save and then prepay at the end of the year. Trust me, it will never happen. It is advisable to fine tune your EMI immediately after salary hike.

(b) 75% of any upfront amount received like annual bonus or maturity amount of investment should be utilized to prepay Home Loan. It ensures that you will be debt-free at the earliest.

The logic of point (a) can be used to find out ideal Home Loan tenure. In short, you fix your home loan EMI based on your net take home salary. Now depending on your Home Loan requirement and interest rate, you can find out ideal Home Loan Tenure. You should not stretch your finances to shorten the Home Loan Tenure else you will end up in a financial mess. Also, it is advisable to clear all other debts before you avail Home Loan so that it will not impact your home loan eligibility.

Conclusion: There are multiple factors which decide the modalities of a Home Loan. You should not go by the words of Home Loan provider or your friends as you know your situation very well. You should discuss with your family members and explore/discuss all the options before finalizing Home Loan Tenure. There is no right or wrong answer to any question. The end objective is how to utilize existing resources in most optimum way. A higher down-payment is also one of the ways which are not explored by many borrowers. Therefore, it is very subjective and you should aim/focus on closing the home loan in 8-10 years which is average Home Loan Tenure in India.

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Amiit G
Amiit G
8 years ago

Hello Nitin ji,

I had borrowed home loan of 38 lacs under SBI MAX GAIN Scheme on Jan 2013. currently my EMI is 37,429 INR @ 9.80 % interest, I have paid 1,40,344 INR towards Principal amount till date. my current Book Balance is (- 35,57,586.00 INR ) , Drawing power is 36,98,458 INR & available balance is 1,40,872 INR.

Can you please suggest me whether i should increase my EMI to 42000 or should i keep this extra money ( 4,000 per month always) in OD account as this is a max gain account , instead of increasing my EMI. waiting for your suggestion

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Amiit G

If you don’t need this extra money in future and other financial requirements are taken care of then you can increase EMI else current arrangement is good to go.

amiit gupta
amiit gupta
8 years ago
Reply to  Nitin Bhatia

Thank you nitin ji for your valuable suggestion & timing.

DO u have any idea do we need to approach to our bank or RACPC center who process the loan in case of SBI ? and in one year how many times we can increase fixed emi amount for ex. in 2015- increase the emi from 38 K to 42 k per month EMI, then in 2016 – increase the emi from 42k to 45 k for remaining year.. or is there any rbi specific / sbi specific norms .

Waiting for your reply.

Thanks once again.

Amiit G

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  amiit gupta

You are free to increase your EMI any no of times. Just submit written request with branch from which you availed home loan or with RACPC.

Nitin Bhatia
Nitin Bhatia
8 years ago

1. Yes
2. Axis Bank or SBH
3. No

Atul Rajvaidya
Atul Rajvaidya
8 years ago

Sir, I have availed a home loan of Rs 16,50,000/- @10.75 for 30 yrs from CanFin housing finance and recently I have switched to Cent bank housing finance with interest @8.87% fix for 10 yr then floating. Now the balance amount is 15 Lakh and cent bank offering EMI of 13371 for 20 yrs whereas i asked Cent bank to increase my EMI as i can pay comfortably and reduce my tenure up to 15 yrs with EMI at 15098/- . but officials of cent bank telling instead of reducing tenure I can do part payment which will be more beneficial.
Is this true, practically being salaried employee at lower band it is not possible to pay part payment in bulk or save monthly then pay in home loan principle at once.
Or I should invest somewhere else like SIP’s or FD where interest is more than borrowing.
Please suggest me sir,
Thanks

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Atul Rajvaidya

As i mentioned in my post that longer home loan tenure is financially beneficial for banks but not for borrower. Therefore you can increase EMI and reduce home loan tenure. Bank cannot refuse the same.

Arun
Arun
8 years ago

Hi, very well put across.

I like the sentance “A common justification is that we will save and then prepay at the end of the year. Trust me, it will never happen. It is advisable to fine tune your EMI immediately after salary hike.”

Very much true with our Indian mentality and this would never happen. I am one of the living examples of that..:)

Kishore
Kishore
8 years ago

Sir, I have taken a home loan from ICICI Bank. My Interest Rate is 10.25 [9.75 Base Rate & 0.5 Margins]. For new customers the margins are reduced to 0.2. So new customers get less than 10% as interest rate. I was talking to the banker. And he advised me to pay 10900/- in order to change the margin from 0.5 to 0.2.
Need your advice whether its prudent to take this approach?
My Loan Amount is 20.5 Lac. Outstanding Loan Amount is 19L.
Overall Tenure is 20 Yrs. Right now, i’m in year 4.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Kishore

Recently ICICI Bank has reduced its base rate from 9.70% to 9.35% therefore from next rest date, your interest rate will be 9.85% i.e. 9.35% + 0.5%. If you would like to further reduce it to 9.55% then you may pay conversion fees to reduce margin from 0.5% to 0.2%.

Kishore
Kishore
8 years ago
Reply to  Nitin Bhatia

Thanks Sir.

Nishant
Nishant
8 years ago

Hello Mr. Nitin,

I had applied for a home loan from ICICI Bank before the rate cut, i.e, my file got logged in before the rate cut by the bank . The loan got approved day before yesterday .

My query is what will be the cut off date for the rate of interest, will it be :
1) Date of Log in of my application
or 2) Date of disbursement

Asking the same because of the margin . At the date of log in, the bank’s margin was 0.20(9.90-9.70), whereas now it has increased w.e.f. 05th October .
Please suggest . Thanks in advance

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Nishant

Your margin will be as on date of Home Loan sanction.

Suresh
Suresh
8 years ago

Hi Nitin,

I got 35L Loan from LICHFL at 10.1% with 2 years fixed & rest 13 years for my Homeloan.

Sofar i have paid 8 Months due & Now i got salary increment of Rs4500. Hence pls let me know on below points

1.whether i should inform LIC to increase my EMI or not & what is the procedure to do so ??

2. Will LIC reduce the interest now to 9.6% due to rate cut or it is applicable only after end of 2 yrs fixed tenure ??

pls suggest & Thanks in Advance

Suresh

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Suresh

1. You can increase EMI. Simply submit a written application in this regard.
2. Your interest rate will be revised after 2 years from date of availing Home Loan.

Sathis Sati
Sathis Sati
8 years ago

Hello nitin sir!

I had availed HDFC home loan for Rs 16,00,000/- in the month of aug 2011 with interest as (RFLR*minus spread 5.75%=10.75& Pa) interest revision cycle of 03 months. total installments 216 with EMI of 16778/- PM. I had an idea to change over to SBI and I approached the HFC. they I they advised to pay a sum of Rs 4200/- for change of spread and promised to reduce the EMI to 162 after paying the said amount. My balance EMI is 173. As per RBI mid term review a customer should not be charged any amount for change. Is this applicable to me? I also request an advice that is it adviseable to repay the entire principle amount when i get a lump sum post retirement ? Im now 35 yrs old due to retire from defence after pensionary benifit ….request ur advice pls… thank u in advance…

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Sathis Sati

A HFC or Bank can charge conversion fees to increase spread or reduce mark up. You may check your revised spread after payment of conversion fees. If new spread is same as what is being offered to new customers then you may go ahead.

If you are comfortable in home loan prepayment from retirement benefits then you may go ahead and close home loan.

Sathis Sati
Sathis Sati
8 years ago
Reply to  Nitin Bhatia

thank u so much… regards

Shahaji Patil
Shahaji Patil
8 years ago

Hello Sir,
I checked online on SBI website & I am eligible for Rs. 30 lac loan for a tenure of 20 years. My company can give me Home loan of upto Rs. 10 Lac. So I am planning to take 10 Lac from Employer & 20 Lac from bank. Is it possible to do it? And do I need to submit any proof to bank about this 10 Lac?

I am doing it because this loan from my employer will be cleared in 3 years. I can easily pay both the EMIs.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Shahaji Patil

You can avail loan from both the bank and your employer. It is not necessary to inform bank regarding the same until unless loan from your employer is specifically “Home Loan”.

Balaji
Balaji
8 years ago

Hi Nitin Sir,

I have query regarding the Financial Institution selection. When i checked for eligibility of Home loan for a selected Property costing 34 Lacs (32L + 2L Regis) for 25 yrs, maximum loan is provided by India Bulls (27.2 Lacs @9.90 Floating Int) other Fin. Institutions such as i) LIC HFL (26.5 Lacs @10.25 Floating Int) ii) AXIS Bank (24.5 Lacs @9.95 Floating Int) iii) SBH (24 Lacs @9.95 Floating Int) iv) HDFC (23 Lacs @9.95 Floating Int).

My questions would be – 1) If i want to go for Maximum Loan – will India Bulls be right choice?
2) If I have arrangement for cash and less bothered about the Maximum loan – Which Institution is better?
3) The seller of Flat already took loan in ICICI bank while purchasing last year and is it good for me to continue in the same bank?

Request you to kindly share your valuable opinion.

Thank you

M4 Mishti
M4 Mishti
8 years ago

Sir, does topping up a SBI housing loan provide any chance of extending the tenure when the borrower is already 70 years of age?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  M4 Mishti

I don’t think so.

Arvind Meena
Arvind Meena
8 years ago

Hello Sir,
Sir I took Home loan Rs 20 Lakh from LICHFL in Jan’2015 for the tenure of 20 yr @10.10 % Fixed Rate for 2 years and after that floating rate.I am paying EMI Rs 24800.
i want to know that should I continue with this EMI to pay house load at earliest or should I apply for changing Home Loan Tenure ???
Pl advice.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Arvind Meena

My apologies but i could not understand your query. Are you planning to prepay or increase EMI.

Soumen kumar
Soumen kumar
8 years ago

Hello sir,
I draw 32000 pm. I want to take a home loan of 15 lac. My monthly expenditure is 15000. What will be ideal tenure for repayment@9. 40%. Now I am 35, a school teacher. I have 4 yrs old daughter.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Soumen kumar

You should keep home loan tenure as short as possible depending on your convenience to pay EMI from household expenditure.

K M Das
K M Das
8 years ago

Hello Sir,

I recently got at statement from bank saying that the balance home loan tenure has been reduced from 216 months to 198 months which means 16.5 years. I’m currently 55 years old and i’ve been paying this loan from the past 15 years. Does that mean rest of loan period is only 1.5 years?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  K M Das

Your understanding is correct. The balance home loan tenure is 1.5 years.

uday
uday
8 years ago

Hi Nitin,

I am 28 married and planning for home loan around 20 L and my gross income is 72K Per Month.
I gone through the above article and can manage to pay 26K EMI per month for 10 years, but is there any disadvantage for this?, because I might need to buy another home in near future.Please help.
Appreciate your work here on this site.
very helpful.
Thanks.

Uday Dandge

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  uday

In my opinion you should target to pay EMI of 36k provided there is no other liability. You should not worry about 2nd home at this stage.

uday
uday
8 years ago
Reply to  Nitin Bhatia

OK thanks for your reply…:)

Rohit Jain
Rohit Jain
7 years ago

Hi Nitin,

I am 27 year old, planning to buy an under construction home (expected to be completed by Jan 2017) of 16.5 Lacs. My wife and me both are working and our net household take home salary is 80K. Our monthly expenses are about 40k (Including our investment in the form of LIC and MF). I also plan to do some part payment as and when I have some surplus money.

Consider the above situation what should be the ideal home loan tenure for me 10 or 15 or 20 years.

Please suggest what is the better option among the two:
1) Take home loan for longer term (may be 15 or 20 years) and do the part payment.
2) Take home loan for shorter term (10 years) and pay just EMI.

I can afford to pay up to 30K per month against the home loan.

Below are the statistics provided from my borrower:
Loan Amount Sanctioned: 15 Lacs
Interest Rate: 9.4 %
Pre payment clause: No Clause and any amount of prepayment can be done after first EMI.

Thanks in advance for your reply…

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Rohit Jain

You should request home loan provider to fix EMI at 30k and accordingly they will fix your Home Loan tenure. Home Loan tenure will be approx 7-8 years. Depending on your income tax slab, you can calculate whether it is beneficial to continue with home loan or not. Please check my following post for more details.

https://www.nitinbhatia.in/home-loan/home-loan-tax-benefits/

Vimala Kannan
Vimala Kannan
7 years ago

Hi sir

My husband is working in abroad and his monthly salary is Rs.1,75,000. We are in need of 10 lakhs home loan. Is it possible we can decide our tenure of loan or it is fixed? What will be minimum tenure we can opt for?

Gold loan or home loan which is better??

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Vimala Kannan

You can decide your home loan tenure and try to keep it as short as possible provided you can pay the EMI comfortably.

I will prefer Home Loan.

Abdulrazzaq
Abdulrazzaq
7 years ago
Reply to  Nitin Bhatia

Sir,
with ref. to the above question, can we go for 5years if we capable for pay high EMI to decrease over total interest on the loan or bank have there fixed minimum nature. Please Suggest.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Abdulrazzaq

You can select home loan tenure of your choice though bank might resist shorter home loan tenure. In such cases, you may avail home loan first and then increase EMI to reduce home loan tenure.

Vishal Khemraj Deogade
Vishal Khemraj Deogade
7 years ago

Dear Nitin Sir,

Thanks for your all time reply to queries. Sir, I am taking home loan from HDFC ltd. One of the section of their form asking about – DO YOU BELONGS TO SC/ST – My question is, by ticking any of these category, will this help for any facilities (like : ROI or any other factor?) or it is just for namesake ? Request to update about the same. Thank You.

Nitin Bhatia
Nitin Bhatia
7 years ago

It may help in lower interest rate or subsidy. The Govt of India has various schemes for certain sections of the society. You may check with HDFC Ltd for more details and eligibility.

Nilesh Tirlotkar
Nilesh Tirlotkar
7 years ago

Dear Nitin Sir,

I availed a home loan of around 17lakh on 1st april 2013 at the rate of 11.35 as on 31dec 2016 remaining loan balance is 1579209.00 and currently the interest rate is 9.55.
My question is should I transfer the loan to different bank which provide interest rate of 8.6-8.65%

Nilesh Tirlotkar
Nilesh Tirlotkar
7 years ago

Dear Nitin Sir,

I availed a home loan of 1715346 on 1st april 2013 at the rate of 11.35 as on 31dec 2016 remaining loan balance is 1579209.00 and currently the interest rate is 9.55.
My question is should I transfer the loan to different bank which provide interest rate of 8.6 – 8.65%

Nitin Bhatia
Nitin Bhatia
7 years ago

First you should approach your existing bank to reduce home loan interest rate.

Nilesh Tirlotkar
Nilesh Tirlotkar
7 years ago
Reply to  Nitin Bhatia

my existing branch will reduce it to 9 % by completing some procedure in which i have to pay around 3000
So what will be the option? should i go with my existing bank or other bank in which rate of intrest is 8.65 around.
Please advice me…

Nitin Bhatia
Nitin Bhatia
7 years ago

You may negotiate for 8.65% with existing bank else balance transfer to another bank.

Suresh Avadi
Suresh Avadi
7 years ago

Sir,

Impact on Tenure or Impact on EMI.

Which one is beneficial if I take home loan on floating ROI

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