Several RBI initiatives like repo rate slash by 40 basis points, linking of the risk weight of home loans to LTV, etc., have been beneficial for the real estate sector. Due to all these changes, the home loan market has also achieved substantial growth and is slated to maintain a CAGR of nearly 22% to 2026.
Factors like rising disposable income, affordable property rates, including the reduction in home loan interest rates were key reasons behind this significant growth. However, lenders take certain aspects into consideration before offering low-interest rates. From improving the credit score to choosing a longer tenor, there are multiple ways borrowers can reduce the interest rate by negotiating with lenders.
A longer tenor helps borrowers to smoothly handle financial liabilities, utilise home loan tax benefit, etc. It is advisable to go through such benefits before choosing your repayment tenor.
Advantages of choosing long-term home loans
Considering the present situation of the real estate market, it is wise to invest in housing properties and getting them financed through home loans. Here is how home loans with a longer tenor benefits you:
- Eligible for a higher loan amount
Before sanctioning the loan, financial institutions go through certain aspects like the borrower’s credit score, repayment track record, etc. Also, the housing loan interest rates get charged depending on the repayment capacity. In case one decides to opt for a shorter loan tenor, the EMIs become significant, making it difficult for home loan borrowers to handle their financial liabilities.
Keeping these things in mind, lenders inevitably sanction a small home loan amount to avoid repayment defaults. If you require a significant loan amount, make sure to go for a longer tenor to conveniently handle the monthly instalments.
- Home loan tax deduction
A large amount gets invested while purchasing or building a housing property. Therefore, before availing a loan, individuals should know what the tax savings and other advantages offered by home loans are. Under Section 80C of the Income Tax Act, home loan borrowers can claim deductions of up to Rs.1.5 lakh on the principal repayment portion.
Under Section 24, borrowers stand to claim tax deductions of up to Rs.2 lakh per fiscal on housing loan interest paid.
In case of a shorter loan tenor, tax savings under these provisions are limited. For instance, for a housing loan with a tenor of 10 years, borrowers can claim such deduction in these 10 fiscals only.
However, if one opts for a tenor of up to 20 years, such home loan tax benefits are extended across 20 financial years. Thus, a borrower’s ability to save taxes rises rapidly.
- Better flexibility of repayment
In some cases, borrowers try to be free from the burden of excessive interest charges and decide to go for partial payment options. Some of the financial institutions charge penalties on the prepayment of housing loans. However, those who have opted for a floating interest rate can get rid of these charges and easily prepay the amount without penalties.
In these cases, borrowers can enjoy tax saving on home loans since there are multiple advantages one gets by opting for a shorter tenor. Since fixed interest rates do not allow interest rate reduction in case there are changes like a repo rate cut, etc., borrowers should check these factors before opting for a home loan.
Financial institutions are also coming up with several pre-approved offers to make financing hassle-free. These offers are available on different financial products like home loans, loans against property, etc. You can simply check your pre-approved offer by submitting basic details like name and contact number and get yourself a better deal on your home loan.
Going for a longer loan tenor is one of the smart ways to reduce the repayment burden. However, keep in mind that if you reduce your home loan tenor, it will help you save significantly on the overall interest cost.