What Is the Ideal Home Loan Tenure: 10, 20, or 30 Years?

Muskaan Kapoor

May 3, 2023 — 5 min read

What Is the Ideal Home Loan Tenure?

A home of their own is a dream that many would like to achieve. However, many also require a little financial help on the side to be able to afford that property. Hence, commonly, people turn to home loans.

Home loans come with a tenure under which you are required to close the loan, along with any additional charges like interest. This tenure is decided by your age, the total loan amount, your repayment capacity, etc. However, which home loan tenure is most suitable for you? Is it 10 years, 20 years, or 30 years?

Well, let’s find out.

What Is a Home Loan Tenure?
Factors That Affect Home Loan Tenures
How Can You Find Your Ideal Home Loan Tenure?

What Is a Home Loan Tenure?

When you acquire a home loan, the lender assigns you a period of time under which you are required to repay the total loan amount. This period of time is called a home loan tenure. This tenure is determined by factors such as your age, income, loan amount, existing liabilities, EMI payment capacity, etc. You can get a loan tenure that is as long as 30 years. However, a home loan tenure cannot surpass your point of retirement.

You can choose a home loan tenure as per your financial planning and preferences. Two options are readily available for you, which include short-term home loans and long-term home loans. If your income can allow you to repay your home loan in larger EMIs, you can opt for a short-term home loan. However, if smaller EMIs fit your financial planning best, you can choose a longer tenure to repay your home loan.

Factors That Affect Home Loan Tenures

Here’s a quick elaboration on the factors that affect home loan tenures:

Borrower’s Age

Your age is a strong determinant of your home loan tenure. While you can get up to 30 years in order to repay your loan, your matters. If you are in your 20s, a 30-year tenure for a large loan amount should be possible.

However, if you take a loan at the age of 50 years, you might not get more than a 10-year tenure. That’s because you are only 10 years away from retirement. A borrower’s capability of repaying the loan decreases significantly due to the end of employment. Hence, lenders always try to close a loan before a borrower’s retirement day.

The Loan Amount

This is a home loan, and hence, the loan amount is bound to float above lakhs, or even crores, of rupees. The banks will proceed to formulate a repayment plan on the basis of the loan amount and the interest rate charged.

You may opt for a tenure that allows EMIs suitable to your EMI payment capacity. This could be based on your monthly income, savings, etc.

Current Liabilities

If you currently have any active repayment cycles, your home loan tenure can be impacted significantly. This could include pending credit card repayments, EMIs of purchase, or another loan. You can either settle these liabilities before acquiring a home loan or decrease the EMI amount of your new home loan.

This could lead to a longer tenure, regardless of how high your loan amount is. Hence, if your goal is the close the loan as soon as you can, it would be wise to close any previous debt or loan chapter before turning the page to a new one.

Borrower’s Repayment Capacity

Your ability to repay a loan is considered your repayment capacity. This ability needs to match the criteria attached to a particular loan amount for you to be able to acquire the home loan. Additionally, the home loan tenure is impacted significantly in this respect.

If your ability to repay, which is the maximum EMI amount you can pay regularly, is high, you can choose a smaller home loan tenure. On the contrary, having a lower repayment capacity could lead to a longer home loan tenure.

How Can You Find Your Ideal Home Loan Tenure?

Now, you must be wondering how you can calculate whether a 10-year, 20-year, or 30-year home loan tenure is ideal for you. Here’s how.

Let’s assume that you’re a salaried individual and wish to buy a home of your own, with the help of a loan. You must make sure that your brand new home does not turn into a bad debt. Moreover, you need to keep funds aside for survival.

Ideally, your EMI amount could be up to 50% of your monthly in-hand salary. In this way, you hold enough for sustenance and channel the rest into repayments. This is the crucial point that can help you understand which tenure is best for you. You could make a decision on the basis of your total loan amount, divided by your EMI payment capacity. Moreover, if a yearly increment is commonplace for you, you can slowly increase the EMI amount and repay the loan off sooner!

You could also decide this on your age. As a 50-year-old, you cannot expect a home loan tenure as long as 30 years. However, you can pick a longer home loan tenure if you’re still in your 20s or 30s. This will heavily affect the EMI you will have to pay and the home loan tenure, under which you are to close the loan.

Let’s look at an example. Suppose you have taken a home loan of Rs. 20 lakhs and you are 25 years old, then your 20 Lakh home loan EMI and the tenure would look a lot like the following:

Age: 25 years old
Available time to repay the loan: 35 years
Total Loan Amount: ₹20 Lakhs
Repayment Capacity: ₹40,000/month

Tenure in months = Total loan amount/Repayment capacity

Hence, X = 20,00,000/40,000
X = 50
Tenure in months = 50
Tenure in years = 50/12

Thus, tenure in years = 4 years.

Now, let’s assume that you require a loan of ₹1 Crore for your brand-new home.

So, Age: 25 years
Available time to repay the loan: 35 years
Total loan amount: ₹1 Crore
Repayment capacity: ₹80,000/month

Tenure in months = Total loan amount/Repayment capacity

Hence, X = 1,00,00,000/80,000
X = 125
Tenure in months = 125
Tenure in years = 125/12

Thus, tenure in years = 10.41 years

You may also use tools such as a home loan EMI calculator in India to carry out the same compassion in seconds.

Conclusion

Whether a 10-year, 20-year, or 30-year home loan tenure is ideal for you is a decision that you and your potential lender can make. This is based on various factors such as your age, the loan amount you require, your repayment capacity, your ongoing debt liabilities, etc.

However, you must make sure that you stay true to your home loan repayment. The loan tenure and the monthly installments are a commitment made by you that should be held holy. Moreover, respecting your assigned tenure can help you build a clean financial history, and your new home will be a worthy investment rather than a bad liability.