Currently most of the banks have risen the home loan tenure up to 30
years owing to the increase in the interest rates from last 18 months depicting
an increase of 250 – 300 basis points. This increase have led the borrowers into
huge financial trouble in order to match up their EMI’s with their paying
capacity. Having a look on this increasing trouble, RBI has given a permission
to increase the tenure of home loan up till 30 years. And the result is that
the most of the banks have increased the loan repayment tenure by 10 years. For
some people it is a matter of an advantage but for some other, it is looking
more like a disadvantage. So, let’s find out its merits and demerits. Have a
look below:
Merits
of 30 year tenure on Home Loans:
Decrease in the
EMI’s: As a result of increase in the loan tenure
up till 30 years, the loan EMI gets reduced by 16% (as per the research). This
is because the interest period gets extended and the amount of interest gets
distributed for longer period and hence, the EMI’s gets reduced. This has given
a benefit for those whose EMI payment capacity is less and to those who feels
little bit overburdened with huge EMI’s.
Affordable
housing and a sigh of relief: Many of us dream of
our own house but the huge prices and high rate of interests on home loans
always discourage us to take a crucial step. But, now with the increase in the
loan tenure by 10 years, have actually made the housing affordable with less
EMI’s and distributed interest amount. Many of the borrowers gets a sigh of
relief owing to the reduction in EMI’s and increase in loan tenure.
Increase in
Loan Eligibility in terms of loan amount: As the
tenure gets increased, people gets more loan eligibility in terms of loan
amount. As there is an increase in tenure, it is assumed to have an increase in
income of the borrower in future and thus his/her eligibility in terms of loan
amount gets increased.
Increase in
Loan Eligibility in terms of age of the borrower:
Earlier the borrower gets a home loan up to the period of his retirement or 60
years. But, now with an increase in the loan tenure, the borrower can get a
loan for the maximum age of 70 years (maximum in case of repayment of loan).
More beneficial
to young people getting less salary: People who are
getting less salary and who are young can be benefitted the most with an
increase in the loan tenure. As people with less salary can afford the low
EMI’s and can opt for longer term as they would be capable enough at that point
of time to repay the loan, a 30 year loan tenure for younger people would not
be more.
In pre closure
cases, this option works out fruitful: In case you
want to prepay the loan (in any case after certain period), this option works
out fruitful as from your pocket less EMI’s would go, rendering no overburden
and a financial crunch to you and your family.
Demerits
of 30 year tenure on Home Loans:
High amount of
interest: Although you are paying low EMI’s but
still the total amount of interest that you are paying over a period of 30
years is very high, which is indigestible once you calculate the amount of
total interest.
Burden for 30
years: There would be a huge burden on your
shoulders till you prepay the loan amount. For 30 years, carrying a stress of
debt can render you certain types of diseases like blood pressure, depression
and heart problems.
Not relevant
for aged people: If you are an old man nearing an
age of 40’s and 50’s, then this option will not work out for you. As 30 years
will be very high to determine your stable and regular income.
In case of
floating interest rates, there is a huge risk of increasing interest rates: Over a period of 30 years, there is a huge risk of increase in
interest rates when you are opting for floating interest rates. Such rise with
an inflation can dig your pocket so deep, keeping it all empty.
Therefore, these are the merits and demerits of increase in loan
tenure up to 30 years. In nutshell, it is a beneficial option for those whose
EMI paying capacity is less and those who are young.
