What home loan tenure should i opt for?



HI,

i have taken home loan of 17,37,000/- Rs. from HDFC bank, with initial tenure of 20 years. (i have paid only 1 emi till now, so it's fresh loan). Now i was just wondering whether tenure of 10 years or 20 years will be benifetial?

i did some calculations in following way for the period of 20 years:

if i go for tenure of 10 years:
————————————–…
emi = 24,921/-
so i pay emi for first 10 years,
and then i start investing full 24,921/- (in MF, eqquities, etc).
so my returns after 20 years (from now) will be 49,80,000/- (compounding with investment of 24,921/- pm for 10 years with return 10% pa avg.)

if i go for tenure of 20 years:
————————————–…
emi = 19,126/-
so i will have 5874/- (i.e. 24921-19126) cash available in my hand pm.m for investment for 20 years
so my returns after 20 years (from now) will be 42,19,000/- (compounding with investment of 5874/- pm for 20 years with return 10% pa avg.)

so, in above way, i see that tenure of 10 years will be benificial for me. But still i am not considering income tax benefit, and also am i doing compounding calculations in correct manner?

can anyone help me to analyze my calculations and point me to the correct decision?

4 Replies to “What home loan tenure should i opt for?”

  1. I think you should go for 20 years, One think I found missing in you calculation is changing Interest Rate, these days Interest rates are high and if they get lower then you can invest more in ur saving, which means more returns at end.


  2. Yes, the interest rates keep changing. Moreover, there are lot of tax calculations involved. Even when you opt for fixed rate investments (like FDs, your post tax returns will not be more than 7-8%).

    In case, you have the earning capacity to pay back the loan in 10 years (if u can afford it), then its always advisable to pay back the loan early due to any unforeseen contingencies and also increased responsibilities in later phases of life.


  3. Hi
    As far as home loan is concerned, go for 20 yrs and then try to make some part payments on yearly basis. By making part payment, you can deduct that money u/s 80C and then in EMI, the intererst portion can be shown as loss from house property and prinicipal portion will be included in 80 C. So always go for home loans for maximum years and make part payments on regular basis. and while making part payments always reduce the EMI and let the years be same.

    This is my experience. I followed this in my home loan and saved more.


  4. The basic rule is to commit yourself to the lowest payment possible and then pay the most you can. Or that you will want to pay.

    If you get in to trouble, like losing a job, you would want the lowest payment possible to avoid defaulting.

    Borrowing against your home to invest is putting your home at risk, at market risk. I hope you have a good day job.

    The income tax benefit is a big part of the calculation so ignoring that is a fault and suggests you haven’t thought it out all that well.

    You have to believe that you will make more money investing than the interest rates will cost you, including the tax benefit.

    Please note that right now in the US stocks are at a LOSS for the last 10 years. So you would be out the interest cost for the loan for 10 years if you did this 10 years ago here.

    Watch your risk factors, imo.





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