Longer the tenure, higher will be the interest amount that you will pay!
Yes, this is true. If you take a loan against property or a personal loan, one of your primary worries is the interest amount you will pay. We prefer taking a longer tenure when we want the EMI amount to be low. There are many reasons associated to it but in general, borrowers choose to do this so that they can reduce their interest burden.
Let’s understand this with an example:
Mr. Kumar has been worried since the past few days to find a solution to two major events in his life; One of them is his younger son’s higher education and the other is the eldest daughter’s wedding. He is considering taking a loan against property because that helps him with higher funds and he can easily fulfill both these obligations.
Loan Amount – 60 lakhs
Interest Rate – 10%
Now we will show you how much of interest will Mr. Kumar pay when the tenure increases from 10 to 25 years for loan against property?
|Interest paid as a % of principal||58.58%||93.42%||131.61%|
|Tenure of loan (in years)||10||15||20|
As you can see in the above table, when Mr.Kumar chooses his tenure for 10 years, he will end up paying 58.58% interest of the principal amount. And when he chooses the tenure of 20 years which is the longest, he would end up paying the loan with 131.61% interest of the principal amount. This means he not only will pay the whole loan amount but will also pay more than 130% of the loan amount as interest.
This example shows that repaying off the loan against property early will help you save a lot of interest. But this also means that you will have to pay higher EMI’s throughout the whole tenure of the mortgage loan.
If you can take a longer tenure to repay off your loan against property, then you would pay interest which would be more than the principal amount itself. But this also means that you will be paying lower EMI’s throughout the whole tenure of the mortgage loan.
Our best suggestion to all of our customers is that you analyze your needs and accordingly take a decision. In case your income is low, you can opt for a longer tenure and repay the loan against property with lower EMI’s. In case your income is high, you can opt for a shorter tenure and repay the loan against property with higher EMI’s.
The focus here would be more on your interest burden handling ability. Hence analyze your financial situation and accordingly make a choice. In case you need help with any of your loan based queries, connect with us by Clicking Here