Some factors you need to consider to arrive at the ideal home loan tenure:

Loan tenure is the duration of the loan. In case of housing loans, generally, the tenure is long - may vary anywhere between five and 20 years. Most borrowers prefer to go in for a longer tenure rather than a short one. The repayment through EMIs depends on the tenure of the loan and amount. Longer the loan tenure, lower the EMI. Shorter the loan tenure, higher the EMI. Of course, going by the same logic, for shorter loan tenures, the interest amount paid is also less as against the longer tenure loans, where the interest amount increases.

Present income

A number of factors influence the determination of loan tenures. The first and foremost one is the income of the borrower - i.e. the disposable income of the borrower. The reason is that it is from this part of the income that he would be repaying the loan instalments. So, if the net disposable income of the borrower is low, it is advisable to go in for a longer tenure loan rather than opting for a short tenure one. This way, the EMI portion is reduced. The loan amount is spread over a longer period of time. The immediate burden on the borrower is low. This is despite the fact that the borrower is required to pay interest for the extended period of borrowing.

Future income

Another important element to be considered is the future income of the borrower. In case the borrower is expecting an increase or reduction in the income levels in future, he has to decide on the tenure accordingly. For example, in case a person is to retire in another five years' time, he may look at a maximum of a 5-year tenure, and may not like to stretch it beyond his retirement age. Similarly, a 30-year-old can think of having a longer tenure loan stretching up to 10-20 years, because gradually his income would also rise. In the initial years of employment, the income levels are low. The income increases over the years (so does the expenditures). So, one may opt for a longer duration loan and reduce the present burden.

Interest rate

Then comes the element of interest. Generally, the short tenure loans attract lower rates of interest as compared to the long tenure loans. This is because a bank can estimate interest rate movements in the near term more accurately than over a long term. So, in case you have adequate liquidity and resources to repay the loan amount, opt for shorter duration loans vis-avis the longer duration ones and thus take advantage of the lower interest rates.

Loan tenure

Yet another factor influencing the loan tenure is the amount of loan. The amount borrowed determines whether you should opt for a longer tenure or shorter one. In case the amount borrowed is huge, go in for a longer tenure loan.

Objective – investment or own use

Another factor that influences the loan tenure is the objective of the loan. Whether you intend to take the loan to purchase a property for your own use or as an investment option is a key question. Generally, if you are borrowing for the purpose of buying as an investment, go for a shorter duration loan to avoid the exit charges payable in case of early termination of the loan and to maintain liquidity of capital.

All these factors are interlinked and need to be analysed in totality to arrive at the ideal loan tenure.