The secret to availing a cost-effective home loan revolves around two essential things: optimal tenure and competitive interest rates. Your EMI and total cost of borrowing is significantly affected by these two factors. While determining the interest rates is not in your control, you can choose the home loan tenure. Your home loan can be for a  short term or can stretch up to a decade or two. Ideally, it should help you pay EMI comfortably without compromising your daily expenses.

Choosing an ideal tenure can be tricky. Here are a few factors you should consider while choosing your home loan tenure.

Age

Your age plays a crucial role in determining the home loan tenure you should opt for. If you are in your 20s or 30s, you can avail the loan for a  tenure of 20 years or more, as you have more time to repay the loan. Also, when you are young, you have more earning years and better prospects of increasing your income in the future

On the other hand, if you are in your 50s, you might struggle to get a longer tenure on your home loan. Lenders are usually reluctant to offer home loan with longer tenure to a middle-aged person. It could be because they are more likely to retire in a few years and could lose a source of income. Also, not having a stable income source can affect your repayment capacity. So, it would be better to opt for a short tenure in your mid-50s. Moreover, it is better to enter your retirement life debt-free if you do not have any income source.

Your income

Home loan EMI can eat away a considerable portion of your income. So, the tenure you choose should leave sufficient income after payment of EMI. If you have other debts and monthly expenses to pay, you can opt for a longer tenure to spread the loan and get a low EMI. On the other hand, you can pay off the loan faster with short tenure, if your income allows. Your EMI would be high, but you would save on interest outgo.

Moreover, you can also consider your credit utilisation ratio. Ideally, it should be 30% or less. So, if your credit utilisation ratio (including home loan EMI) is exceeding 30%, you might want to opt for a longer tenure to reduce the EMI amount.

Interest outgo 

Your home loan tenure affects the overall interest outgo. Experts suggest that if you are comfortable paying a higher interest outgo, you can avail a longer tenure and vice versa.

While you choose the home loan tenure, you must keep in mind that a longer tenure would increase the interest outgo and the overall cost of borrowing. On the other hand, a short tenure can unnecessarily put pressure on your daily finances. Therefore, you should opt for an optimal tenure where it is not too long nor too short. You can use  a home loan EMI calculator to calculate your EMIs and accordingly choose a tenure.