Most financial experts advise home buyers to opt for a longer home loan repayment tenure, stating benefits like lower EMI burden and tax benefits. While in some cases, shorter repayment tenure may not be feasible, because of monetary constraints, those who can repay the credit in a shorter period must opt for it to save money, increase their credit capacity and have complete ownership of their property, as soon as possible. In this article, we elaborate on the merits, especially monetary benefits, of shorter home loan tenures.
Why are short home loan tenures monetarily beneficial?
This requires some mathematical calculation. Suppose you borrow Rs 50 lakh from a bank/financial institution at an annual interest rate of 8%. Following is the break-up of your final payment, depending upon your chosen repayment tenure:
Home loan tenure: Final payment
| Tenure (in years) | Monthly EMI | Total repayment |
| 30 | Rs 36,688 | Rs 1,32,07,764 |
| 20 | Rs 41,822 | Rs 1,00,37,280 |
| 15 | Rs 47,783 | Rs 86,00,868 |
| 10 | Rs 60,664 | Rs 72,79,656 |
| 5 | Rs 1,01,382 | Rs 60,82,918 |
While the EMI burden may be higher for a short tenure, it would lead to substantial savings in the long run.
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Those in favour of longer tenure often cite tax savings. Under Section 24 of the Income Tax Act, a home loan borrower enjoys tax deductions of Rs 2 lakh in a year towards interest payment. Under Section 80C, they enjoy deductions of up to Rs 1.50 lakh in a year. Therefore, the longer the tenure, the longer the duration of this benefit claim.
However, the money you pay as home loan interest is much higher than the deduction available for first-time home buyers under Section 24.
For a repayment tenure of 30 years, you will pay more than Rs 2 lakh of interest for nearly 22 years of the tenure. For the first 16 years of the loan, in fact, you will pay more than Rs 3 lakh as interest.
In addition, most home buyers benefit from Section 80C by investing in options like LIC, PPF and PF. In the majority of cases, the buyer is unable to get any tax deduction against the home loan principal. All in all, tax deductions benefits are negligible when compared to the amount and lingering psychological effect of an EMI.
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Save liquid money, be credit-ready
A shorter home loan tenure means you are eligible to apply for other loans or save liquid money. You may require funds for various other needs or emergencies. Being credit-ready and having sufficient funds in your account are both important at crucial junctures.
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Pay sooner to stay free from encumbrances
Most home buyers who avail of housing finance, are middle-class people working on a salary. In case of the unlikely event of a job loss or salary cut – something many borrowers faced during the pandemic – you may have to suffer monetary distress. In the worst-case scenario, the bank/financial institute would repossess your property and sell it in the open market to recover the outstanding loan. Shorter home loan tenure helps you avoid such disturbing situations.
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