Jun 15, 2023Home Ally

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

by Godrej Properties Limited

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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, 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, mortgage tenures can generally be categorised into two types: short-term loans and long-term loans. 

Short-Term Loans

Short-term mortgage loans in India, with a tenure of up to 5 years, suit borrowers aiming for quick repayment and able to manage higher monthly instalments. These loans offer lower interest rates, appealing to individuals seeking to minimise interest costs by clearing debt faster. However, higher monthly payments must be carefully assessed for affordability.

Long-Term Loans

Long-term mortgage loans in India extend beyond 5 years, typically ranging from 10 to 30 years. They offer lower monthly instalments and suit individuals seeking an extended repayment period. Interest rates on long-term loans are usually higher due to the lender’s risk exposure to interest rate fluctuations over a longer duration.

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

1. 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.

2. 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.

3. 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.

4. 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.

Wrapping It Up 

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 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.

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