Selecting the ideal loan repayment tenure

Which is the right tenure period for repayment of loan? Such questions are often discussed by the home loan borrowers as they do for repayment options or interest rates. The tenure of repayment is fixed in accordance to the age of the borrower, his income, job stability, retirement plans and other debt obligations. Now days the borrowers are more interested in clearing their debts as soon as possible due to uncertainties and increasing cost of essential commodities.

Long tenure

For instance a person takes a loan of Rs 20 lakhs for tenure of 25 years at the interest rate of 10%. Thus his monthly EMI will stand to Rs 18,100. as the tenure is long the EMI seems to be affordable. But the borrower should remember that the cost of borrowing will be high with the longer tenure.

Usually borrowers choose long tenure to increase the loan eligibility of the borrower. But a person whose retirement is closer is not eligible for a long tenure loan, beyond his working years.

Moreover long tenure loans are uncertain means the interest rates can change either ways or the inflation can go up to an unexpected figures. Then what will the state of the economy in all those years no one can predict anything about that. The experts say the borrowers who have opted for long tenure loan should take in consideration the fluctuation in interest rate and to be on safer side must save separately.

Short tenure loans

There are some borrowers who opt for short tenure as they do not want to be in trouble due to rate fluctuations. In case of shorter tenure loans the EMI amount will be big. Although it is the best way to clear loans faster but it is not possible always to keep aside a major portion of the salary to repay home loans while managing other routine monthly expenses.

For instance a person takes a loan of Rs 20 lakhs for a tenure of five years at a 10% interest rate, then his EMI amount will stand to Rs 42,500. the EMI amount will be big due to small tenure of repayment. Thus it would be difficult for most of the borrowers to manage the huge EMI repayments.

Choose tenure that suits your needs

Then in such case what should we do? Choose the middle path i.e. choose the tenure that suits your needs. In case it is difficult to manage huge EMI payments you can choose 10 to 15 year loan tenure. It is better for young borrowers that they should complete their repayment of home loan before they start saving for their children’s higher education. And the borrowers whose retirement is closer should repay their debts before the retirement. The people who do not have a regular income source it is quite a tough job for them.

Therefore a borrower takes a loan of Rs 20 lakhs for tenure of 10 years at the 10% interest rate its EMI comes out to be Rs 26,400. Generally borrowers prefer to repay their home loan in eight years, thus the 8-10 years can be ideal for a borrower who has not done planning for any immediate major expenses.