Understanding maximum and minimum tenure for a Home Loan

When you have the option of choosing a maximum loan tenure for a home loan, it gives you the advantage of owning a home without straining your budget. Suppose you need a ₹25 lakh loan to buy a house, and you choose to repay the loan in 5 years at 8%. That's an EMI of about ₹50,000. Now, what if the repayment period is extended to 15 years? That's an EMI of ₹24,000 approx. Almost half!

What is Home Loan tenure?

Home Loan tenure means the total loan duration. This includes the loan amount disbursed and the repayment period. Your entire loan principal and interest need to be paid off. Generally, the minimum home loan tenure is 2 years, and the max tenure for a home loan can go up to 30 years. For instance, the Axis Home Loan offers home loans up to ₹5 crores with a maximum tenure of 30 years with an attractive rate of interest. You can either choose from fixed or floating interest as per preference. Your EMI and interest rates both change with the term length of the loan. The loan tenure flexibility depends on your requirements as well as other factors such as your retirement age and income. Let's learn more about this.

Maximum Home Loan tenure

The longest repayment period on your Home Loan can extend up to 30 years. A longer tenure limit means you will pay lower EMIs. Thus, a major benefit of opting for a maximum loan duration is that it gives you a sense of financial freedom as there is less pressure on your monthly budget. A maximum loan term also gives you tax benefits throughout the home loan.

Minimum Home Loan tenure

The minimum home loan tenure is generally 2 years. The main advantage of choosing a shorter tenure limit on your home loan is that you can be debt-free quickly. Since the loan spreads over a shorter duration, expect your EMIs to be higher. Also, banks charge a higher interest rate on short-term home loans and keep a minimum loan term cap.

Maximum vs minimum Home Loan tenure

1. Time Period
The term length for a Home Loan ranges from 2 years to 30 years. Lenders consider loans of less than 5 years as short-term and more than 5 years as long-term home loans.

2. EMI Amount
For the same loan amount, you will pay a higher EMI amount for a shorter loan duration and a lesser EMI if you opt for a longer home loan tenure. This is because the loan amount has to be paid off quickly when you choose a shorter loan term. Check out this EMI Calculator.

3. Loan Amount and Disbursal Speed
You can expect a higher loan amount if you choose a longer loan maturity period. However, the disbursal speed tends to get slow since banks need to follow stricter risk prevention measures for a greater amount. Conversely, you will get a lower loan amount for a shorter loan tenure, and the disbursement will be quicker.

What factors to consider before choosing a Home Loan tenure?

1. Age:
Pay off your home loan before or when you retire since, after retirement, you will no longer have a regular income. So, choose a longer tenure if your retirement is far.

2. Required Amount:
If you need a larger loan amount, say about ₹25 lakh or more, you may choose a longer loan tenure to be able to pay your EMIs comfortably. For a lesser loan amount, you may opt for a shorter tenure.

3. Interest payment:
Opting for a longer loan tenure typically leads to paying more interest overall. This happens because the interest accumulates over a longer period, resulting in higher total interest payments compared to shorter-term loans.

4. Monthly Income:
If you have a higher monthly income, you can pay a higher EMI without disturbing your finances severely. Hence, a shorter loan term will be suitable.

5. Home Loan Type:
The loan tenure will vary for different types of home loans like a plot loan or a home renovation loan. So consider your requirements and then choose the loan tenure accordingly.

6. Purpose:
The purpose of your home loan can be for your residence, an investment or a renovation of your existing house. Choose the correct loan tenure as per your purpose.

7. EMI:
Longer loan tenure means paying lower EMIs, and shorter tenure means paying higher EMIs. So choose the loan term as per your EMI paying capacity.

Also Read: Top 10 advantages of taking a Home Loan

Conclusion

The option of minimum and maximum loan tenure for home loans offers you the flexibility to pay off your debt as per your financial capability. Take your decision after checking an EMI Calculator and see how much EMI you will pay for a given loan tenure. A lower loan duration is suitable if you need a lesser loan amount and have a good income to pay off the higher EMIs easily. A maximum loan duration is advisable if the loan amount is large so that you pay lower EMIs more comfortably. Also, you can always request an extended repayment tenure if the need arises.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.