For families living in rented homes, owning a house is a sweet and expensive dream. Wouldn't it be nice if the dream turned true? For Prakash, this seems to be the right time to invest in a house. The current lull in the market gives him a tremendous scope to haggle.

If the tenure of the loan is short, say 8-10 years, the borrower's monthly EMI burden is bound to be high. Short tenure loans can be burdensome and might require the family to restrict themselves to a strict and simple lifestyle. On the brighter side, he can clear his debts faster.

If the tenure of the loan is long say, 20 to 25 years, the borrower's monthly EMI burden drops down considerably. Long-term loans are opted for by borrowers who seek to increase their loan eligibility. EMIs appear more affordable though the cost of borrowing may work out to be expensive.

This table reflects the principal and interest components of the EMI repaid to the lender each year. The maximum deduction that can be claimed for a 10-year tenure is shown. The interest component of the EMI repaid to the lender through the tenure of the loan amounts to Rs 23,75,187.

IT deduction to the tune of Rs 13,32,852 can be claimed under Section 24 on the interest component of the loan through the 10-year tenure. As much as Rs 10 lakhs can be claimed as IT deductions under Section 80C through the 10-year period.

This table reflects the principal and interest components of the EMI repaid to the lender each year. The maximum deduction that can be claimed for a 20-year tenure is shown. The interest component of EMI repaid to the lender through the tenure of the loan amounts to Rs 49,27,820.

IT deduction to the tune of Rs 27,31,186 can be claimed under Section 24 on the interest component of the loan through the 20-year tenure. As much as Rs 16,84,963 can be claimed as IT deduction under Section 80C through the 20-year period.

How they compare

At first glance Scenario II may appear enticing as the borrower can avail a huge tax deduction on the interest component of the EMI. This is when you compare Rs 27 lakhs over a 20-year period against Rs 13 lakhs for a 10-year loan. However, your tax deduction is not the actual money you save. This is assuming tax rates at the highest slab of 30 percent will be applicable.

In both the scenarios the borrower can claim upto Rs 1 lakh under Section 80C on the principal repayments. However, this is only an opportunity. There are numerous other instruments under Section 80C like the PF that also come under this Rs 1 lakh cap. Not all borrowers can show their principal repayments and investments in other Section 80C instruments fully under the Rs 1 lakh cap.

The interest or cost of borrowing a 20-year loan is almost double that of a 10-year loan. Hence, it is unwise to indulge in a long tenure loan. The only exception is when you cannot afford high monthly EMIs and have no option but to increase the tenure.