A housing loan is money people borrow from loan companies to purchase a property. Whether they buy a residential flat or a piece of land, it stays with the finance company as collateral until the borrower clears the loan. Depending on the property cost and the applicant’s credit score, housing finance companies fund up to 90% of the property cost. At the same time, the borrower pays the remaining amount as a down payment.
Although housing loan is an easy funding option that most home buyers use nowadays, people have many misconceptions circling them. Many people can get misguided by them and suffer consequences. This article will look at the most prevalent myths about Home Loans one should be aware of.
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Loans with the Lowest Interest Rates are the Best
While comparing lenders and loan schemes, most borrowers aim at getting the lowest possible interest rate. Although a low-interest rate reduces the loan cost and makes repayment easier, it is not the only factor that makes a loan plan the best. Aspiring borrowers must also look for other factors while comparing loan plans, including eligibility conditions, documentation requirements, customer service, additional charges, and lender’s reputation.
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Home Loans Have High-Interest Rates
Many housing loan companies offer home loans at competitive interest rates. They determine the interest rates based on factors like the applicant’s credit score, income, and DTI ratio. Applicants with a good income and decent credit score often qualify for Home Loans at reasonable interest rates.
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A High Credit Score Guarantees Loan Approval
Another common myth is that applicants with a high credit score easily get a Home Loan. Although loan companies give a lot of importance to the applicant’s credit score, they determine their eligibility based on several other factors, including the property’s worth and location and the applicant’s income, age, employment, and financial obligations.
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Fixed Interest Rates are Better than Floating
Many people opt for a fixed interest rate to keep their EMI amount constant and plan their budget accordingly. However, it is not always the best option. If the market goes down, floating interest rates may decrease the interest rate and EMI amount. Both fixed and floating interest rates have pros and cons. Borrowers must research well before making a choice.
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High-Interest Rate Means Hefty Monthly Instalments
Loan companies determine interest rates based on the applicant’s credit history, income, financial obligations, employment, repayment capacity, and other factors. They charge higher interest rates from loan borrowers with an increased risk factor. However, a high-interest rate does not necessarily mean hefty monthly instalments. Despite high-interest rates, borrowers can use an EMI calculator for Home Loans to select an extended loan tenure with budget-friendly EMIs.
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Pre-payment Always Attracts Penalties
Earlier, loan companies used to levy pre-payment charges. However, according to the latest RBI guidelines, lenders cannot charge any pre-payment charges on floating-rate loans. Authorities have also announced guidelines on setting pre-payment charges for fixed-rate loans. So, check them before pre-paying for a Home Loan.
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Borrowers Can Fund 100% of the Property’s Cost with Housing Finance
The RBI does not allow loan companies to fund 100% of the property’s cost with a housing loan.
Depending on the property’s value, they can finance up to 90% of the cost. The borrower pays the remaining amount from their pocket as a down payment.
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Loans with Long Tenures are the Best
Borrowers have the freedom to choose their loan tenures. An EMI calculator for Home Loan allows them to calculate EMIs for different loan terms. While doing the calculations, they notice that loans with longer terms have smaller EMIs that they can repay easily. However, opting for the longest possible loan tenure is not the best thing to do. A longer tenure reduces the EMI amount but increases the interest outgo due to more EMIs. So, one must opt for the shortest possible loan tenure with easily affordable EMIs.
Housing Loan paves the borrower’s path between wishing for a dream house and finally owning it. However, understanding the product in detail is crucial before picking the final offer. Be aware of these myths and compare loan products diligently to choose the one that suits you the best.