A home loan is a long-term investment for both the lender and the borrower. Most people cannot pay for a home with a single payment. Therefore, the tenor is as important as the interest rate for a home loan. In this article we are going to look at the factors that affect a home loan tenor.
1. Interest rate
The interest rate is one of the most important factor associated with any loan. It is the amount of money a person will repay on top of the principle borrowed from lender. This interest rate is the money earned by the financial institution on the principle lent to the borrower. The financial institutions are flexible in allowing the borrower to choose the tenor where the longer the tenor the lower the interest rate. This way the borrower can pay lesser EMI which they can handle easily each month.
2. Credit score
Some financial institutions reduce the tenor if the borrower has a lower credit score. As lower credit score means poor management of credit in the past or late payment of dues banks see such borrowers as a risk. They will try and collect the money back as quickly as possible, hence the tenor gets affected.
3. Age of borrower
The age of the borrower/s play an important role on the tenor of home loan. If the person taking the loan is young, say about 25 years old he/she will be eligible for the maximum tenor which with most banks is 30 years. An older borrower might not get such a long tenor or would be asked to take a co-borrower.
Also, in the case of joint home loans, financial institutions take the age of the older borrower as the base age. If the age of the borrower is less and has a higher retirement age, then the tenor can be bigger else the tenor will be shortened.
4. What the loan is used for
The purpose the loan is used for, plays a role in determining the loan amount. For example, if a person takes a loan for renovating their home the loan tenor he/she might be eligible for is 10 years. But if a person takes a home loan to buy a piece of land and build a house then they will be eligible for a tenor of even up to 30 years.
5. Age of the property
The age of the property especially in the case of purchasing a used apartment or independent house, the underwriter can hire a structural engineer to analyze the building, its location, the number of years of its existence, material used. These factors could affect the tenor of the home loan.