Home loans are among the most common types of loans taken by people to get their dream abode. Strangely, it is also one of the most misunderstood among all loans. People have misconceptions about everything, right from its interest rate to eligibility criteria. So, here’s clearing out the biggest myths about taking a home loan. Read on before you decide to apply for the loan!
Myth 1: Home loans have a higher interest rate
Taking a home loan does not mean that you will have to pay a high interest rate. In fact, the interest rate depends on the loan tenure. You can extend your loan tenure to reduce the monthly interest rate payable. It will ensure that you do not have to pay a hefty EMI each month.
Besides, factors like your age, profession, and monthly income also impact the interest rate. Someone who is young and has a stable job and a good monthly income will attract a lower interest rate.
Myth 2: The RBI fixes the interest rate
The Reserve Bank of India (RBI) only determines the key rates. Banks are not allowed to increase the interest rate beyond a particular point. However, lenders have the authority to decide their final rate of interest. This is the reason why you see so many different banks have different interest rates.
It also gives them the liberty to offer options to the borrowers. For instance, lenders might set a lower interest rate for women borrowers.
Myth 3: Prepayment is always a bad idea
People tend to think prepayment is a bad idea because of the charges levied for it. But the prepayment charges are generally not levied beyond the first five years. As a matter of fact, many lenders have no prepayment charges whatsoever. It also depends on how much you are trying to prepay. So, you might not be charged anything for a prepayment of 25 percent in a financial year. Anything more than that can attract a penalty.
Prepayment can only be a bad idea when you are causing yourself financial stress just to be debt free. Think carefully about whether you are going to need the lump sum for other needs before you deposit it for the loan.
Myth 4: Credit score is the chief basis for the loan
There is no denying that a high credit score makes you trustworthy to a lender. But that is not the only factor that will impact those numbers on your home loan EMI calculator. Lenders will also consider the status of your employment (full-time/part-time/contractual), your job stability, age, monthly disposable income, and so on.
A good credit score gives you an edge but does not act as the sole factor in getting your loan approved.
Myth 5: The best loans have the lowest interest rate
Simply because it is cheaper does not mean it is better. In many cases, such cheap loans have a lot of hidden charges. You might end up paying hefty prepayment penalties, valuation fees, and more. When you add up all these charges, the cheap loan does not seem that affordable anymore.
Your best bet is to compare a few home loans and consider all the features of the loans. Do not go for the cheaper one right away. And when you compare, read the fine print for all the loans to make sure there are no hidden charges.
As you can see, none of the most commonly believed ideas about home loans are actually true. This should give you more clarity about setting the tenure and getting a reasonable interest rate for the loan.