Merits and demerits of 30 year tenure on Home loans In India

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.