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Home Loan Tenure: Short Term loan vs Long term loan – How to choose?

Home Loan Tenure: Short Term loan vs Long term loan – How to choose?

Finally decided to move out of the rented apartment and invest in a home of your own? Unless you have a lot of money saved, you might be looking for a home loan to fund this significant purchase. Well, there’s no shortage of lenders providing housing finance in the market. However, before applying for a loan, you must research the best and most affordable home loan option.

Apart from looking for lenders who offer competitive interest rates, you also need to decide the loan’s tenure. In terms of the loan term, you have two options: short–term loans and long-term loans.

Let’s understand the major differences between the 2 comparing short term loan vs long term loan.

Short term loan vs long term loan

Points of difference  Long-term loan   Short-term loan
Tenure Tenures of long-term loans are usually above five years. For a long-term home loan, maximum tenure can go as high as 30 years.    For short-term loans, the tenure is usually five years or less.
Mortgage period Since housing finance products are secured, your property won’t be entirely in your name until you pay back the loan. So, with long-term loans, your house will be mortgaged for a larger period.    You will get debt-free quickly and have the house in your name in a shorter duration.
Rate of Interest Long term loans are usually spaced out over decades. Hence, lenders charge lower interest rates.  Since the home loan tenure is shorter, lenders charge higher interest rates on short-term loans to compensate for the smaller loan period.    
EMI Amount Given the longer tenure, the monthly EMI payments will be on the lower side. However, the total money spent on interests will be high due to the longer term.    Since short-term loans are spaced out over a smaller duration, the EMI amount is usually higher. However, the total interest amount on the loan is lower.
Disbursement speed A Long-term loan usually has a high sanction amount. This is why lenders need more time to evaluate a borrower’s creditworthiness and repayment capability. Hence, long term loans require substantial time to be disbursed.     A Short-term loan is disbursed swiftly due to the small loan amount and minimal documentation.

Additional Read:  How to reduce a Home Loan Tenure

Long term loan vs short term loan: Which one to choose?

There’s no best choice when it comes to deciding between a short or long term loan. It all depends on one’s capabilities and needs. If you wish for cheaper instalments and aren’t bothered by the total amount spent in interest, you can go with the long term option. In contrast, if you wish for a speedy loan disbursal and aren’t concerned about high-interest rates, then short term loans are more suitable.

Besides, it’s critical to keep in mind that age also determines your loan eligibility. If you are in your 30s or 40s, lenders might not provide you with a 20 or 30-year loan, as you will reach the retirement age within the loan tenure.

Additional Read:  Tips & Tricks to Reduce Home Loan EMI

In summation

Planning to buy your dream house? Well, Tata Capital can help you achieve your dreams with affordable housing finance solutions. You can also plan your loan tenure using our home loan tenure calculator. So, what are you waiting for? Visit our website today and start planning using our home loan EMI calculator.

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