September 18, 2012 5:57 pm
Can anyone help me to understand this. is it better to take home loan for longer period or shorter period? Is it better take loan for max period and then make prepayments?
I would go for the maximum allowable period for the Home Loan. The rationale being :
1. You can always repay the principal every year – most Home loans allow for around 25% of principal repayment annually.
2. Since the duration of loan is long dated, you would have to pay less EMI compared to short duration Loan. This eases the cash flows and helps greatly to increase the disposable cash for other investments / usages.
Banyan Financial Advisors (BFA)
Dear SRK, the home loan period should be primarily based upon one’s repayment capacity. At any given point of time, the total EMIs (Home, Car, PL……) should not be more than 40-45% of net take home income.
Based upon this ratio, you may plan your home loan term.
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