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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.