Planning to purchase a dream home is certainly a big move and possibly something nearly all of us aspire to. But, except one has a lot of cash saved, all you want is the proper home loan to fund the purchase. To sanction a home loan, banks and financial organizations take into account certain eligibility standards such as the financial condition and age of the borrower, loan tenure & amount, and the borrower’s credit score. The latest decline in interest rates, availability of many loan options to select from and hassle-free loan processing has made it possible to turn this distant dream of many people right into a reality. Although there are enough creditors supplying housing finance in the market, before making use of a home loan, one should perform studies to find the best option that fits one’s wants.
Types of Home Loan
Financial institutions provide two types of home loan in India.
- Short term home loan
- Long term home loan
While the choice to select the loan tenure appears straightforward, it isn’t always that simple. There are numerous elements to this choice which should be taken into consideration cautiously before making use of a Home Loan.
Here is a comparative evaluation of long term and short term home loan.
Interest Rate
Interest rate against your Home Loan is an important factor and might drastically have an effect on the last decision. For short term Loans, the interest rates are lower compared to the long term Loans. The reason is that in the short run, the lender can estimate the feasible actions in the interest rate more precisely compared to the long run. As the repayment tenure for Home Loans can extend to 30 years, the movements inside the interest rate are hard to predict. As a result, to cover for the risk involved, creditors charge higher interest rates for long term Home Loans.
EMI Amount
Another vital factor that will have an effect on your final decision is the amount of EMI that you may have the funds for. As Home Loans are repaid in installments, you want to choose an EMI which you are comfortable with. A home loan calculator tool allows you to calculate the EMI beforehand. For short term home loans, you may be expected to pay substantially higher amounts compared to long term loans, which give you decreased EMIs to be served. However, longer repayment tenure includes better interest value and hence provides greater burden on your shoulders. You would also take a longer period to become debt-free. So, you need to attempt to strike a satisfactory stability here, and choose a repayment tenure that is as short as possible, subject to the EMI amount you may have the funds for each month.
Mortgage of the property
As Home Loan is a secured offering, your home may be mortgaged with the lender until you pay off the Home Loan quantity in full. Thus, longer is the repayment tenure, longer the properties may be mortgaged with the bank. Similarly, shorter is the repayment tenure; quickly, you’ll be debt-free and enjoy a peace of mind.
Objective of the purchase
If you’re shopping the assets for the reason of investment and would really like to liquidate it as quickly as you discover a precise deal, you ought to choose a short-term Home Loan. This will prevent foreclosure charges, which will be applicable when you close the loan. Similarly, in case you are shopping the assets for self-use, you could choose a longer repayment tenure, as lower EMIs lessen the threat of default payment.
