8 Myths About Home Loans

There are some common misunderstandings or myths concerning home loans in today’s market. EMIs, or equated monthly installments, have become one of the key subjects of conversation for home purchasers now that interest rates on home loans have decreased. With so many myths regarding home loans, it’s easy to fall victim to them if you don’t know the realities.

Inflationary Monthly Payments Due To A High Rate Of Interest

When borrowers are charged a higher rate of interest on their house loan, their first instinct is to increase their monthly payments, which will cause them financial difficulties. The majority of banks strive to make EMI payments as simple as possible for their customers. If the interest rate on your house loan is high, the bank may extend the term for you so that you don’t have to pay a large monthly payment. Although you may end up paying a considerable amount in interest over time, the rate has little effect on your month-to-month financial planning.

The lender’s interest rate is also influenced by other criteria such as the borrower’s age, income, and so on. If you apply for a home loan when you are young and have a solid salary, the lender will lower your interest rate. As a result, you will no longer have to be concerned about excessive EMIs.

Prepayment is always linked to a penalty

This isn’t always the case, though. Pre-payment penalties are usually assessed during the first three to five years of a house loan. In addition, the charge is reduced during the course of the loan. Prepayment fees may or may not be charged by various banks or lenders. It is entirely dependent on the financial institution’s character.

You will not be harmed by such fees if you plan to settle your house loan obligation with your personal funds. Unless you choose to refinance your house loan with a new financial institution, most banks and lenders waive the prepayment penalty. Prepayments of up to 25% of the outstanding home loan amount are usually allowed in a single financial year by most banks. However, for higher pre-payments, banks may levy a 2-4 percent pre-payment penalty on the additional pre-payment.

Loans with the lowest interest rates are fantastic

It is a widely held belief in the marketplace that house loans with lower interest rates are the best. However, what you think you see isn’t necessarily accurate. If a house loan has a low rate of interest but also has fees such as a legal valuation fee, a penalty for prepayment, and so on, you could end up paying a lot more for an ostensibly cheaper loan. Make sure there are no hidden fees or levies on your home loan by reading the fine print. You should constantly evaluate house loans before choosing one, rather than going with the one that appears to be the cheapest.

Fixed-rate loans are better than variable-rate loans

When it comes to interest rates, you should not be swayed by a single phrase. If you choose a fixed-rate home loan, it does not guarantee that you will be able to keep that rate for the duration of the loan. Fixed-rate home loans have a rate that stays the same for a set length of time. The money market clause and interest rate resetting apply for the remainder of the term.

Banks are unconcerned about the applicant’s employment situation

This is yet another popular misconception that exists in current times. The job situation of the house loan applicant is a major concern for banks. The applicant must keep the bank or lender informed on his or her retirement, work status, unemployment period, and other relevant information. Home loan agreements have a condition that specifies that if the applicant is unable to repay the loan, his or her current employment will be responsible for paying the balance.

The borrower is not responsible for property insurance

The property must be secured from natural calamities such as fire, floods, and other natural disasters, according to most housing loan terms. The bank has the option of including the cost of property insurance in the house loan you have taken out. As a result, you will be responsible for paying the premiums, which will be paid in monthly installments. Make sure you talk to the bank regarding property insurance and come to an agreement. You can wind up wasting a lot of money if you don’t.

Choosing a home loan for the tax benefits

When you get a home loan, you can get tax benefits. However, this concept can lead to people purchasing properties even if they do not require one at the time. If you and your spouse are in the highest tax bracket, taking advantage of a tax deduction is a no-brainer. However, taking out a home loan merely to save money on taxes is not a good idea. If you want to save money on taxes, there are other options available.

Approval of a home loan is guaranteed if you have a good credit score

Another popular belief is that if an applicant’s CIBIL score is high, he or she will have little trouble getting a home loan. You must understand that your CIBIL score is not the sole element that determines your loan eligibility. Your eligibility is also determined by a number of other variables. The CIBIL score is one of the elements that the bank or lender considers. Other reputable credit agencies also provide credit reports. Make sure you have multiple credit reports to back up your score. A mismatch in credit scores can also result in your house loan application being denied. Determine the cause of the discrepancy and correct and verify the reports as quickly as possible.

Conclusion

A home loan fills the gap between dreaming of owning a home and making it a reality. However, you must first educate yourself about a product before purchasing it. Compare various home loan options and select the one that best suits your needs.