There are quite a few misconceptions or myths about home loans prevalent in the market today. Now that the rates of interest have gone down for home loans, EMIs or equated monthly instalments have become one of the main topics of discussion for home buyers. With so many misconceptions about HOME LOAN, you can fall prey to them easily if you do not understand the facts.
The instant reaction of several borrowers when they are charged a higher rate of interest with their home loan is that their monthly instalments will rise which will give rise to financial problems for them. Most banks try to make EMI payments [Use HOME LOAN EMI CALCULATOR to compute your Home Loan EMIs.] easier for their customers. If the rate associated with your home loan is high, the bank might increase the tenure for you, so that you do not have to pay a huge instalment every month. Although, in the long run, you might end up paying a hefty interest amount, your month-on-month finance planning does not take a hit if the rate is high.
Interest rate levied by the lender also depends on other factors like age of the borrower, income of the applicant, etc. If you apply for a home loan at a young age and have a good income, the interest rate will be brought down for you by the lender. So, you will not have to worry about high EMIs anymore.
This is not always true. Generally, pre-payment charges are levied during the first three to five years of the home loan. Also, the charge levied goes down over the tenure of the loan. Some banks or lenders may not charge for pre-payment, some may. It completely depends on the nature of the financial institution.
In case you plan to repay the home loan debt using your personal savings, you will not be affected by such charges. Most banks or lenders waive off the penalty for pre-payment unless you opt for home loan refinance from a different financial institution. Most banks allow pre-payments of up to 25% of the outstanding home loan amount in one financial year. However, for larger pre-payments than that, banks might charge 2-4% as pre-payment penalty on the extra pre-payment.
It is a common idea that prevails in the market that home loans associated with lower rates of interest are the best. However, what you perceive is not always true. If a home loan offers low rate of interest but charges like legal valuation fee, penalty for prepayment, etc. are associated, you might just end up paying a lot more for an apparently cheaper home loan. Read the fine print carefully and ensure that there are no hidden charges on your housing loan. You must always compare home loans before you pick one rather than straightaway going with the one that looks cheaper.
You should not get influenced by a certain word when it comes to rate of interest. If you opt for a fixed rate home loan, it does not mean that you will be able to enjoy that same rate throughout the entire tenure of the loan. With fixed rate home loans, the rate remains the same only for a particular period. The rest of the tenure is subject to the money market clause and the resetting of interest rates.
This is another common myth that is prevalent in times like these. Banks are extremely concerned about the home loan applicant’s employment status. The applicant must keep the bank or lender posted about his/her retirement, employment status, unemployed phase, etc. Home loan agreements do have a clause that states if the applicant is unable to clear the home loan debt, his/her present employer will be liable to pay for the outstanding home loan amount
Most housing loan contracts clearly state that the property must be protected against natural calamities like fire, floods, etc. The bank can add the cost of property insurance to the home loan borrowed by you. Accordingly, you will also have to pay the premiums which will be payable with the monthly instalments. Ensure that you have a talk with the bank about property insurance and come to a common ground. Otherwise, you might end up spending a lot of money.
You can avail tax deductions when you go for a home loan. But this idea, sometimes forces people to invest in properties even if they do not require one at that point of time. Let’s say you and your spouse are fall under the highest tax bracket, availing tax deduction makes complete sense. However, just because to want to pay less taxes, opting for a housing loan makes no sense. There are other options that can be opted for if you want lesser tax deductions.
Life Insurance Corporation of India promotes LICHFL. Most people think that LICHFL is a Government HFC (Housing Finance Company). LICHFL is reputed and listed organisation that offers home loans and are promoted by LIC.
Another common notion is that if the applicant’s CIBIL score is high, he/she will easily get a home loan. You must understand that CIBIL score is not the only factor that decides your eligibility towards a home loan. There are several other factors that determine your eligibility. CIBIL score is one of the factors taken into consideration by the bank or lender. There are other reputed credit bureaus that offer credit reports. Ensure that you have more than one credit report justifying your score. Mismatch in the credit scores can also lead to disapproval of your home loan application. Find out the reason for the mismatch and get the reports corrected and verified as soon as possible.
A home loan paves your path between the dream of buying your house and finally owning your dream-house. However, you must understand the product that you are opting for before you pick it up. Compare multiple home loan products and choose the one that suits you the best.