Here is why Home Loans with Longer Duration are the Ideal Ones

Dev Singhraha

Relocation Expert

Earlier people would use their savings, retirement funds or provident funds to buy or construct a new home. But with the availability of home loan easily, higher purchasing power, tax benefits, increasing urbanisation this trend has changed. Nowadays, individual buy home even before their marriage with the help of home loan which offers long tenures to repay them back. The borrowers usually opt for a shorter home loan period to get free from debts quickly without realising the advantages of longer home loan tenure such as higher home loan eligibility, income tax benefits as well as flexibility in repayment of the home loan. Ideally, the tenure for home loans should be up to 20 to 30 years.

Now let’s discuss the benefits of having a longer tenure in detail.

Higher loan eligibility

The eligibility of home is determined based on an individual’s ability to pay back the home loan by paying the monthly EMI, which in turn in evaluated on the basis of his or her disposable income. In case of shorter tenure of the loan, the EMI’s are comparatively higher and the borrower is eligible for a smaller home loan amount. Whereas in case of a longer home loan tenure, the monthly EMIs will be comparatively smaller and the borrower will be eligible for a higher home loan amount which means you will be able to buy a bigger and better property.

Repayment flexibility

If you want to get free from debts, you can easily make prepayment (either full or half) of the home loan amount under floating rate of interest without any penalty charges. If your home loan is under the fixed rate of interest then also you can prepay a certain amount of the home loan every year without any penalties but you should not be borrowing from any other institution. Hence, you get the flexibility to make prepayments as per your cash flow and get debt free quickly.

Income tax benefits

As per Section 80C of the Income Tax Act, deduction of up to Rs 1.5 lakhs is allowed on the repayment of the principal amount of the home loan. These days usually the required quantity of the home loan amount is large. Hence the principal amount part of the home loan having a shorter tenure will be higher as compared to a long duration home loan. So if the principal component exceeds the deduction limit, then you would not be able to claim any benefit along with losing a significant portion of the home loan repayment. And Section 24b of the Income Tax Act provides benefits on the interest paid on the home loans. As there are no other tax benefits that are as good as home loan interests, therefore it is better to avail this benefit as long as you can.

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