Home Loans are sanctioned for an average of twenty years of tenure. All the financial institutions have different policy while offering a loan tenure. For salaried individuals loans are booked assuming that all organisations have the retirement age set as sixty years. Similarly, for all self-employed individuals, loans are booked assuming they would take retirement between sixty-five to seventy years.
Leading lenders like HDFC Ltd, ICICI Bank, Axis Bank, PNB Housing finance have the benchmark retirement age set as sixty-five years for Self-employed. Contrary to these, the State Bank of India offers loan to self-employed individuals until the age of seventy years.
The customers generally opt for a tenure of twenty to twenty-five years for a home loan. During the course of the loan tenure.
Various Reasons Leading to an Increase in Loan Tenure
Change in Rate of Interest
The change in the rate of interest can lead to an increase in the interest component of EMI. If this happens, the financial institutions primarily prefer to increase the loan tenure rather than increasing the EMI burden on the customer. This is preferred to avoid any disbalance in the customer’s monthly expense and keep the NPAs low.
Part Payment of Principal Amount
Partial payment of the principal outstanding leads to an increase of principal in the EMIs. Generally in such instances, the lenders keep the loan tenure constant and reduce the EMI burden of the customer. However, since the borrowers are habitual to repay the EMI amount as applicable earlier, it is suggested they contact their lender and get the loan tenure reduced. On the other hand, they can opt for making an investment of the differential value. Understand the calculation of reduction of tenure vs investment of differential amount in EMI in our old post here.
Pradhan Mantri Awas Yojna Benefit
With the Government of India introducing the Pradhan Mantri Awas Yojna (PMAY) the borrower’s are getting the benefit of nearly two lac thirty-five thousand that gets credited directly in their home loan account. This amount is deducted from the principal outstanding. Generally, the financial institutions are opting to reduce the monthly instalment of the customers with this credit.
Customer’s Delibrate will to Change Tenure
There are scenarios in various borrower’s loan repayment tenure where they delibrately wish to change the loan tenure they are servicing. This could be due to two scenarios.
The customer has received multiple increments in his income hence his repayment capacity has increased. He wishes to enhance his monthly instalment thereby reducing the loan tenure for him.
The loan borrower has ongoing obligations which have resulted in an increase in his monthly expenses. In such cases, the borrowers opt for increasing the loan tenure.
The borrowers also opt for an increase in loan tenure if they wish to avail of any new loan. The current EMI may be one reason for lower eligibility. In such scenarios the borrowers opt for either contacting their existing lender to increase the loan tenure or they may apply for a Balance transfer of their existing loan to avail an increased loan tenure along with a better rate of interest option.
In whatever instance the customer opts for an increase in loan tenure, the financial institution would not offer a loan tenure higher than the retirement ages as discussed earlier. A salaried employee can only have a loan tenure increased where the entire amortisation ends before the borrower attains 60 yrs age if salaried. Similarly, for Self-employed borrowers, the amortisation has to complete by 65 to 70 years of age, as per the policy of a particular lender. The only deviation in the retirement age is for Government employees who are eligible for a pension. They can avail of a loan until the age of 65 years.
Although there are multiple reasons where customers opt for an increase of tenure, it is always suggested customer’s to opt-out of increasing the loan tenure. This is so as with the increase in loan tenure, the interest outflow increases. Hence the customer should decide wisely before making any decisions regarding the tenure.