As the name implies, a home loan allows you to borrow money to finance the purchase of a home at an agreed-upon interest rate and repayment term. The lender, a bank, or another financial institution, retains ownership of the property until you repay the loan completely.
The decision to purchase your ideal house is an important one. Apply for a home loan only if you are financially stable. Apart from the lender’s financial situation, financial institutions consider additional factors such as the borrower’s age, loan tenure, and objectives.
Home Loans: Short Term Vs. Long Term
- Short-term loans are for up to five years, while long-term loans are five to thirty years or even longer. Individuals should choose short-term loans only if they are financially stable enough to repay the debt in a short time. Similarly, if borrowers want to improve their eligibility for a house loan, they should choose long-term loans.
- Short-term loans often have lower interest rates, while long-term home loans usually have higher interest rates.
- While the EMIs for short-term loans are usually expensive, this is not the case with long-term loans. Long-term loans have low interest rates.
Some Critical Factors Which Help You Decide on Home Loans
Are you still confused? Are you unclear if you need a short-term or long-term loan?
To help customers make a decision, we bring you the following critical points:
The interest rate applies to your home loan. The home loan interest rates have a significant effect on the borrower’s choice. In contrast to long-term house loans, short-term home loans have a low interest rate. When applying for a house loan, it is critical to determine if the interest rate is fixed or flexible. Fixed interest rates remain stable independent of market conditions, while floating interest rates fluctuate in response to market conditions.
The primary effect of house loan tenure is on the amount of interest that they must pay. When the payback period gets increased, the interest expense rises significantly. Likewise, if the payback period is short, the interest expense is minimal. After all, the rate is dependent on the interest rate in effect.
Mortgage of Property
A mortgage loan is a secured transaction. As a result, the property will remain until the debt entirety gets paid. The longer the tenure, the longer the lender will mortgage the property.
House loans must be in instalments. A borrower should choose an EMI plan that is suitable for them. Prepare to pay an extremely high EMI on a short-term house loan. However, when it comes to long-term loans, be prepared to pay a low EMI. One should choose for the short term if the EMI cost is manageable.
Before taking up a long-term or short-term house loan, the borrower should carefully review the loan’s terms and conditions. However, the maximum and minimum payback terms vary based on the financial institution you choose. Thus, a borrower should choose the loan term based on their ability to repay.