Comparing Mortgage Tenure In India: Short-Term Vs. Long-Term Loans

Mortgage Tenure: Short Vs. Long

In India, mortgage loans are an essential financial tool for individuals and families to purchase or invest in property. When considering a mortgage for the loan, one of the key decisions is selecting the tenure, which refers to the length of time over which the loan will be repaid. In India, loan mortgage tenures can generally be categorised into two types: short-term loans and long-term loans. 

Short-Term Loans

Short-term mortgage loans are offered by various lenders in India. This type of loan is suitable for high income borrower profiles who can easily manage high monthly payments. Usually, lenders offer short term mortgage loans for tenure ranging from 1 to 5 years. The shorter duration of the loans attract lower interest rates, which is appealing to a large number of borrowers. So, those looking for minimum tenure on home loan opt for this type of loan. It also gives the opportunity to clear the debt fast and enjoy hassle-free home ownership. Individuals who have high income or expecting an income increase in the near future can opt for this loan offer. It is also suitable for those who are looking to refinance the loan or resale the property. Furthermore, lenders provide this financial solution to borrowers as it is a low risk offering. 

Read More: Mortgage Loan Vs Home Loan: Decoding The Difference 

Long-Term Loans

Long-term home loan tenure in India extends beyond 5 years. Most lenders offer home loan maximum tenure of 30 years, which comes with numerous benefits and features. It is a popular financing option amongst homebuyers due to its lower monthly payment option. The entire loan amount is spread over a longer repayment period, which eases the borrower’s financial burden. However, the interest rate of a long term loan is usually higher than the short term loan due to the risk factor involved. Borrowers with a stable income profile, and good credit history can bag a better deal from the lender. Depending upon the personal preference, borrowers can opt for flexible or fixed interest rate payment. 

Also Read About: Tips for Choosing the Right Mortgage Type for Your Property

Several Factors To Be Considered When Deciding Between Short-Term And Long-Term Mortgage Loans

Current Monthly Salary

The borrower's monthly salary impacts their repayment capability. It helps the lender analyse their credit worthiness by considering many factors including the monthly income of the individual. Depending upon the income stability, the loan amount and monthly installments are decided to ensure the borrower meets financial obligations without any financial constraints. 

Age of the Borrower

The age of the borrower plays a crucial part in deciding the likelihood of the person to get consistent income during the loan period. Usually, individuals between the age of 18 to 60 years are eligible to get home loans from lenders in India. Many NBFCs and banks also offer home loans to people above the age of 60 years. You should always check the eligibility criteria from the lender before applying for the home loan. Usually, Younger borrowers may get longer repayment terms, while older borrowers get shorter terms for loan repayment.

Property Type

The type of property in which you are investing affects the loan term. There are numerous properties in the market, different lenders have different criteria for offering home loan. If a person is buying primary property, they may get better loan offer than if they are buying an investment home. The lender checks borrower’s interest in keeping the property for long term to complete the repayment term. 

Aim of Buying

The purpose of purchase is another factor affecting home loan tenure in India. Whether you are buying for personal use, rental income, or investment, it affects the loan offer. 

Financial Capacity

Evaluate your income, expenses, and financial goals to determine how much you can comfortably afford to repay each month. Short-term loans require higher monthly payments, so ensure your financial situation can accommodate them.

Interest Rates

Compare the interest rates offered on short-term and long-term loans. Short-term loans typically have lower interest rates, which can result in overall interest savings. However, long-term loans provide the advantage of stable monthly payments, despite the higher interest rates.

Future Plans

Consider your long-term plans for the property investment. If you plan to sell or refinance the property in the near future, a short-term loan may be more suitable. However, if you plan to hold the property for an extended period, a long-term loan might be a better choice.

Prepayment Flexibility

Check whether the lender allows prepayment or foreclosure of the loan without significant penalties. Short-term loans can be beneficial if you have the ability to repay the loan and reduce the overall interest burden.

The Final Word

It is essential to carefully assess your financial situation and future goals and consult with financial advisors or mortgage experts before making a decision. They can provide personalised guidance based on your specific circumstances and help you select the mortgage loan tenure that best suits your needs.

Frequently Asked Questions

1. How do interest rates differ between short-term and long-term loans?

Ans. Short-term loans generally have lower interest rates, while long-term loans tend to have higher interest rates. The longer tenure of long-term loans exposes lenders to the risk of interest rate fluctuations over an extended period.

2. What should individuals do before deciding on a mortgage tenure?

Ans. It is important to evaluate your financial situation, consult with financial advisors or mortgage experts, and carefully consider your long-term goals and affordability before making a decision on mortgage tenure.

3. How does the tenure of a mortgage affect the overall cost of borrowing in the Indian context?

Ans: In the Indian context, a home loan with minimum tenure usually has lower interest rates and home loan with maximum tenure has higher interest rates due to the risk involved. So, longer the loan tenure, higher the total borrowing cost. 

4. How does the choice between short-term and long-term loans impact monthly mortgage payments?

Ans: For short-term loan, the monthly payment is higher but the overall interest charged is lower and vice versa. Both types of home loan have their benefits, which suits different kinds of buyer profiles. Individuals with higher monthly income can opt for short-term loan and average income person should go for long-term loan to lower their monthly financial obligations. 

5. What are the current trends in mortgage tenure among Indian borrowers?

Ans: The current real estate market scenario showcases inclination towards long-term home loans. It comes with the benefit of lower monthly payments, which keeps rising property prices in check. However, the trend is expected to take a turn in future as the disposable income is rising. Millennials are getting high paying jobs, which is increasing their repayment capacity.