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Indian Real Estate News : Bangalore
Tenure impacts cost of home loan
Source: Times Property in The Times of India, Bangalore Oct 07, 2011
The loan tenure is the time duration for which a loan is provided. The tenure of a loan decides the quantum of EMI due to the lender. Hence, a borrower must exercise prudence when selecting the duration of the loan.

In order to be debt-free soon, some home buyers prefer to opt for a short loan tenure. A short tenure is also preferred by borrowers who seek predictability and are jittery when rates move upwards. However enticing a shorter tenure loan may appear, not all borrowers can be comfortable with it.

Lower the tenure of the loan, greater is the quantum of EMIs. Ending up with an unmanageably hefty EMI can increase the possibility of defaulting. Consider a loan amount of Rs 50 lakhs at 11.5 percent. If the tenure of the loan is 15 years, the EMI stands at Rs 58,400. On the contrary, if the loan tenure were eight years instead, the EMI would work out to be Rs 79,800.

A home loan debt must not prevent you from making regular savings towards an emergency fund. A home buyer may find it difficult to make regular savings/investments and meet regular monthly expenses with a huge EMI to tackle. People close to their retirement years usually take short tenure loans. This is because they have lesser working years ahead of them and draw higher income.

Those who are unable to cope with high EMI dues have the option of increasing their loan tenure. Some banks allow young borrowers to stretch their tenures to as high as 25 years. A long tenure enables borrowers to pay lower EMIs instead of straining on financial resources.

While long tenure loans are easy to repay, the cost of borrowing is higher. Consider a Rs 50 lakhs loan at 11.5 percent for a tenure of 15 years. The EMI outflow is to the tune of Rs 58,400. The cost of borrowing in this case is Rs 55.14 lakhs. If the tenure were 10 years instead, the EMI outflow would be Rs 70,000. The cost of borrowing for this 10 year loan would be around Rs 34.36 lakhs.
Tag: Home loans, Bangalore real estate
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