The Optimal Home Loan Duration: Choosing Between 10, 20, or 30 Years.


Purchasing a house stands as one of the most significant financial commitments individuals undertake in their lives. Consequently, selecting the optimal tenure for a home loan becomes crucial for a smooth and stress-free repayment experience. In this guide, we aim to enlighten you on the key factors that influence the decision of your home loan tenure, aligning with your financial preferences.

Latest News on Home Loan Tenure

As Home Loan Rates Hike, Tenures Reach Beyond Borrowers' Retirement

March 2023

Lenders provided homebuyers with the lowest interest rates of 6.5% a year ago, but there has been a substantial increase in the last ten months. Individuals who initially borrowed at 6.5% are now facing a 9% interest rate, resulting in their repayment tenure extending beyond retirement.

While floating rates imply that borrowers must adapt to the prevailing market rates, it also presents an opportune moment for refinancing, as lenders are currently willing to compromise their margins for new customers. This allows borrowers to potentially save around 100 basis points on their loans.

Several banks have yet to fully comprehend the repercussions of escalating rates, and they persist in making the same EMIs. Although their monthly installments may remain unchanged, the consequence is an extended loan repayment period due to the rising rates offsetting the higher cost.

According to experts, refinancing is advisable for recent borrowers, even if the new interest rate is only 25 basis points lower. The impact of interest rate fluctuations is more pronounced in the initial years when the rate component constitutes a larger share of the EMI. Therefore, transferring loans is more financially advantageous for those with several years of EMIs remaining.

About Ideal Home Loan Tenure

About Ideal Home Loan Tenure

No longer do people rely on saving throughout their working years to afford a house. In today's financial landscape, where property prices are steadily rising, obtaining financial assistance has become a necessity for prospective buyers.

A home loan stands as a form of financial assistance provided by institutions like Banks and Housing Finance Companies (HFC) to aid individuals in the seamless purchase, construction, renovation, or rebuilding of their homes. These institutions, commonly referred to as 'lenders,' play a pivotal role in facilitating such transactions.

Home loans typically represent larger and longer-term financial commitments compared to conventional car loans or personal loans. Lenders extend these loans following a thorough evaluation of the applicant's eligibility, taking into account not only the borrower's qualifications but also assessing the suitability of the property for which the loan is sought.

Continue reading to gain insights into the recommended home loan tenure, along with essential details pertaining to the application process, repayment schedule, and the requisite set of documents.

What is a Home Loan Tenure?

The period over which a home loan is fully repaid is termed the 'tenure' of the loan. The maximum duration of a home loan is influenced by several factors, such as age, time remaining until retirement, monthly income, monthly expenses, and more. While banks and other financial lenders typically extend a maximum home loan tenure of 30 years, they also stipulate that borrowers must settle the loan before their retirement.

Prospective home loan applicants can tailor their repayment plan to align with their financial preferences. There are two primary categories of home loan tenures: Short-Term Home Loan Tenure and Long-Term Home Loan Tenure. Let's explore the considerations for choosing between these options.

Choosing between Short-Term Home Loan Tenure and Long-Term Home Loan Tenure hinges on your monthly and yearly debt obligations. A higher income coupled with fewer debt obligations allows for a more substantial portion of your income to be allocated to home loan repayments. In such cases, opting for a short-term home loan tenure is advisable.

Conversely, if you have numerous monthly debts to settle, it's prudent to divide your home loan amount into smaller portions and opt for a long-term home loan tenure to facilitate hassle-free repayment. Additional factors come into play when deciding on a home loan tenure; continue reading to gain insights into these considerations.

Factors Affecting Home Loan Tenure

Find below a few major factors that affect the home loan tenure for a borrower. 

  • Your Age: Your age is one of the major factors that affect the choice of your home loan tenure. Most banks provide a tenure of up to 30 years or until the retirement age of the borrower ends. The retirement age for employees in India ranges from 58 to 65 years. Here are the details for employees working in different streams. 

Types of Employees

Retirement Age

Central Government Employees

60 Years

Private Sector Employees

58 Years

State Government Employees

From 56 to 60 Years

 For self-employed individuals, the maximum home loan tenure can extend up to 30 years, applicable until the age range of 60-65. The specific duration of the repayment term varies from one bank to another. Those who secure a home loan early in their professional careers can leverage the advantage of an extended tenure, leading to either a reduced Equated Monthly Installment (EMI) amount or a higher loan amount.

  • Home Loan Amount: The home loan amount represents another influential factor in determining the home loan tenure. Financial institutions formulate the repayment schedule by considering the principal loan amount and the corresponding interest based on the offered home loan interest rate. Borrowers have the freedom to select the duration of the tenure in alignment with their monthly income and the installment amount for the home loan. For instance, if the total home loan amount exceeds three percent of your annual income, opting for a shorter home loan tenure can result in interest savings.

  • Existing Debts & Loans: As already mentioned, you must keep in mind your existing loans and debts before choosing the home loan tenure for the repayment of their loan amount. You can consider settling some of these debts or combining them into a single loan to increase your borrowing capacity. Or, choose a longer home loan tenure and reduce your home loan instalment amount. This way, you can continue to manage your existing debts while enjoying the home loan benefits. 

Home Loan

The Best Home Loan Tenure

While taking a home loan, there is no best or ideal tenure as such. Choosing the tenure is completely dependent on your preferences, financial status, and other goals in life.

Some may choose to pay a higher EMI and close the loan as soon as possible. This allows for a higher amount of savings in mid-life.

A major chunk of home loan applicants choose to pay EMIs as low as possible so that they have a greater cash flow to pay for other expenses.  

Also, some may look to strike a balance between closing the loan faster, as well as having a decent disposable income.

Additionally, through proper financial planning and some regular savings, a long-tenure home loan can be closed early by making smaller pre-payments along with the regular EMIs. This gives the flexibility of taking a higher amount of home loan while paying a lower EMI. You may read more on home loan prepayment.

Home Loan Prepayment- Definition and Benefits 

Prepaying a home loan can significantly reduce the borrower's burden by bringing down the interest payments. If a buyer chooses to prepay some amount of the home loan, the principal amount (also the interest-bearing part) reduces. Therefore, it will have a positive impact on future home loan EMIs. Additionally, the overall payable interest also reduces with loan prepayment. Let’s check out some significant benefits of home loan prepayment- 

  • Lesser Principal Amount: When a borrower prepays the home loan, part of the principal amount also reduces. Therefore, the interest applicable on the amount goes down in terms of money, not percentage. 

  • Reduced Loan Tenure: Prepaying home loans can also reduce the tenure, which means the borrower will be able to pay off the loan amount early. 

  • Faster interest savings: Prepaying home loans can help borrowers make quicker interest savings compared to the savings that will be made by making the same payments later.

Note- Some lenders may charge a penalty on prepayment of a home loan; therefore, check the charges mentioned in your home loan agreement with your bank and then choose whether to go for it.

The Bottom Line on Ideal Home Loan Tenure

Finally, to fully capitalize on the benefits of lower Equated Monthly Installments (EMI) and a higher loan amount determined by the tenure, it is recommended to purchase a home before the age of 28. This allows for a 30-year tenure and an increased loan amount.

Nevertheless, an argument can be made that even if the home loan tenure decreases after the age of 28, a higher loan amount can be accessed later in life based on a higher income in subsequent stages.

However, the practical reality is that the approach of spending now and saving later does not prove effective in real-life situations!


Also Read: 8 Smart Cities in India that are Best for Living 2024

Frequently Asked Questions

Ans 1. You must keep in mind factors like your monthly income, expenses, retirement age, etc., while choosing the home loan tenure for yourself. Analysing your loan repayment capacity with the help of these factors will help you in choosing an ideal home loan tenure for yourself.

Ans 2. Banks and other financial lenders offer a maximum home loan tenure of 30 years. The number of years may vary for different banks.

Ans 3. Banks offer a maximum home loan tenure of 30 years. However, the duration of the same also depends upon your current age. You may check with your chosen bank for the maximum home loan tenure they can offer.

Ans 4. Banks offer home loan pre-closure facilities. You can avail of the same and close your home loan before the home loan tenure ends by paying the entire due home loan amount, along with the pre-closure charges. The amount of these charges may vary for different banks.

Ans 5. Your home loan tenure depends upon your retirement age. If you are going to get retired at the age of 60 Years, your home loan tenure should not be more than 15-20 years.