Buying your dream home is a big move – both personally and financially, along with choosing the right home loan.
Nowadays, due to the easy availability of home loans and higher earnings of the family, most individuals are buying their first home even before marriage with the help of home loans. Before you opt for a home loan, it’s important to take into account the basic parameters you need to meet for banks and financial institutions to lend to you.
Tenure typically ranges between 15 and 30 years, depending on the loan amount and your payment capacity amongst other factors. One should, in fact, opt for home loans, with a long tenure. Here are some of the benefits of doing so!
Higher loan eligibility
Home loan eligibility is based on an individual’s ability to repay the home loan every month, in the form of equated monthly installments (EMIs). This, in turn, is assessed on your disposable income. So, if you opt for a longer tenure home loan, you will be eligible for a higher loan amount as compared to the shorter home loan. Thus, with longer tenure and hence higher eligibility, you may be able to buy a bigger or better home, than what you can with a shorter tenure home loan.
Greater flexibility of repayment
Since the loan is spread over a longer tenure, you have more flexibility in repaying the loan. During the initial years of your career, lower EMIs suit your needs. Moreover, as and when your income increases, you can use it to increase your EMI or even prepay a particular amount of your loan. Thus, you can become debt-free earlier, while retaining the flexibility of making payments according to your cash flow.
Income tax benefits
According to the Income Tax Act, Section 24b provides tax benefits on the interest payment on home loans. After considering the tax benefit, the effective home loan rate of interest is better than what you can earn on any other alternative investment avenue. It is advisable to avail of this benefit as there are no alternative tax benefits that are as efficient as that on home loan interests. It also includes deduction under Section 80C for the repayment of principal. The longer your loan will run, the longer you would be able to avail of income tax benefits. In the case of a shorter home loan tenure, you would not be able to claim the deduction beyond a specific limit.
Mortgage period
Since housing finance products are secured, your property won’t be entirely in your name until you pay back the loan. So, with long-term loans, your house will be mortgaged for a longer period.
Disbursement speed
A long-term loan usually has a high sanction amount. Due to this, lenders need more time to evaluate a borrower’s creditworthiness and repayment capability. Thus, long-term loans require substantial time to be disbursed.
A home loan with a maximum tenure is suitable for salaried people within the age group of 25 to 30 years and professionals with their own business within the age group of 30 to 40 years. A home loan with longer tenure helps younger individuals to own a home before time with various benefits like tax exemptions and tax rebates under section 80C while repaying the loan. Follow this simple guide before you opt for a home loan.
