Avoid This Mistake When Choosing a Home Loan Tenure; Even a Difference of a Few Years Can Lead to Significant Financial Loss

Home Loan: Varying the tenure of a home loan—from 10 to 25 years—can result in a difference of crores of rupees in the total interest paid. With proper planning, significant savings can be achieved in both the monthly EMI and the total interest amount.

Home Loan Tenure Tips: Owning one's own home remains a dream for many people even today. Due to rising property prices, people often take out home loans from banks to fulfill this dream. However, there is one crucial factor to keep in mind when taking out a home loan: choosing the right duration—or tenure.

People are often confused about whether to keep their monthly EMI low or to try and pay off the loan as quickly as possible. In reality, this decision can make a vast difference in the total interest paid. Therefore, it is considered prudent to strike the right balance when selecting a loan tenure. Let's explore this in detail.

Tenure Makes a Significant Difference

Suppose an individual takes out a home loan of ₹2 crore at an interest rate of approximately 8.5%. If the tenure for this loan is set at 20 years, the total interest payable amounts to roughly ₹2.15 crore. Consequently, the total repayment figure reaches approximately ₹4.15 crore.
If the very same loan is taken for a tenure of 25 years, the interest amount increases to approximately ₹2.86 crore. The total repayment figure then reaches approximately ₹4.86 crore. This clearly demonstrates that a difference of just 5 years in the tenure results in a substantial difference in the total interest paid.

Shorter Tenures Offer Advantages

If the same loan is taken for a tenure of 10 years, the total interest payable drops to approximately ₹98 lakh. The total repayment figure also falls to around ₹2.98 crore.
In other words, simply changing the loan tenure leads to a massive difference in the interest paid. Over a longer duration, you end up paying back significantly more money.
The difference in interest alone between a 10-year tenure and a 25-year tenure amounts to approximately ₹1.9 crore. This clearly demonstrates that while a long-term loan may seem comfortable, it entails a significantly higher total interest payout.

Experts' Opinion

According to a report published in News18, financial experts often suggest that when taking out a home loan, it is advisable to initially opt for a longer tenure—such as 20 to 25 years. This ensures that the burden of the Equated Monthly Installment (EMI) does not feel too heavy. However, as your income grows over time, you can reduce the loan tenure by making periodic prepayments. Furthermore, if you come into any surplus funds, you can utilize them to pay down the loan, thereby securing relief on the total interest payable.