When you buy a home with the help of a home loan, that first concern that naturally appears in your mind is about the consequent EMI commitment. The younger you are while hunting for a home, the sooner will be your EMI outgoings. Lenders offer a longer tenure for clearing your loan when you start at an early age. However, stretching your EMI longer than required has its demerits. The following are some aspects that can affect your EMI when your repayment tenure is long;
Future interest rate variations
Home loan interest rates come in two basic forms, “fixed” and “floating”. When you opt for the former, your interest rate will remain constant through out the loan tenure. However with a floating interest rate there may arise an increment in it which means, longer the tenure, the more prone are you to pay the incremental portion of your interest to the lender. Thus, it’s better to keep your EMI at an affordable level without adversely affecting your budget and at the same time without exposing it to unexpected interest rate fluctuations in the long run.
Your eligibility gets affected while applying for other loans in future
When you are already a home loan borrower after being eligible for it as per the home loan EMI calculator and wish to take another loan, your eligibility gets hampered. So the sooner you clear your home loan, the sooner you can apply for any other loan with your eligibility and capacity remaining intact.
You may be in a better position income wise to pay your EMIs at the time of availing a home loan. The future however is unpredictable. When your home loan tenure is long, should any untoward situation arise on the income front in the far future, you may face difficulties in paying your EMI at that point of time. Therefore, the earlier you clear your home loan, the better it is.
Scope to invest elsewhere gets affected
When you pay your EMIs to repay a home loan, you develop a frame of mind to bear the financial outgoings. The longer your loan tenure takes to terminate, the shorter is the period you get to apply this frame of mind to invest in other available options like a recurring deposit scheme or a SIP.
Thus, it is important to plan your home loan tenure as much as it is to choose the right home. Your EMI may escalate if you opt for a short tenure and to counter this, it is important to keep unwanted expenditure and impulsive purchases at bay.