Thanks to RERA, which protects the right of buyers and seeks to bring transparency to the real estate sector, the Pradhan Mantri Awas Yojana which makes buying a home more affordable, and the various facilities offered by lenders, home loans have become a suitable way to buy your own home without breaking the bank.
With a home loan you need not worry about saving enough while factoring inflation rates. Using it, you can simply save for a down payment to buy your own home and pay EMIs instead of rent. A few common myths however may deter you from investing in a valuable asset such as a home. Take a look at the most common myths associated with housing finance to avoid missing out.
The Loan With The Lowest Interest Is The Best
Home loan interest rates usually range from 8.45% to 11.75%.Despite the slightest difference in the interest rate making your home loan more affordable, the loan with the lowest interest rate may not be the best offer you receive. It is important to consider added features, the flexibility of repayment, the tenors involved, and any added benefits provided to you by the lender. Most importantly, ensure you read and understand the fine print that can include hidden charges, which affects the overall affordability of your loan.
Lenders Do Not Permit Negotiations On Home Loan Interest Rates
You are free to negotiate the interest rate offered by your preferred lender if you have a valid reason to do so. When you have a stable and substantial income, a strong credit history, and aren’t reaching retirement age any time soon, you should negotiate for a better interest with your lender. If you are unable to do so, consider another lender who may be more flexible with the interest rate. Also, remember that you can switch your home loan to another lender up to midway through your repayment when you receive a better interest offer and stand to save money.
The Shortest Tenor Is The Best Tenor
Getting debt-free early is great, but only when you can afford it. While you want to repay borrowed credit as soon as possible, choosing a very short tenor may strain your financial resources. Use an EMI calculator to learn the impact of your choice of tenor on your monthly budget. Ask yourself if you will be able to fund emergencies and other requirements while continuing to save a portion of your income without having to apply for additional credit. Then choose your tenor wisely. You can always make part pre-payments in case you receive any extra income to pay off your loan sooner.
A Hike In The Interest Rate Will Increase EMIs
While it may seem like your EMIs will increase due to any hike in the rates, do not worry about the same. It is important to remember that an interest hike only affects your home loan at the end of the reset period on your home loan. If you are at such a stage in your home loan tenor, you can also choose to transfer your home loan to a more affordable lender. It is also important to note that most lenders tend to increase your tenor instead of increasing your EMIs whenever there is a hike in the interest rate. To be doubly sure, confirm the same with your lender while inquiring about the home loan they are offering. Additionally, if the interest rate increases, consider opting for a higher EMI, if you can afford it, instead of a longer tenor to save on interest expenses.
Part Pre-Payments And Foreclosures Come With Expensive Charges
Worrying about part pre-payment and foreclosure on your home loan shouldn’t actually deter you from availing a home loan. The RBI has mandated all lenders to charge zero fees on part pre-payment and foreclosure on floating interest loans. Further, if you want to opt for a fixed interest rate, speak to your lender about the charges of part pre-payment and foreclosure. These charges vary amongst lenders and many lenders offer these facilities at nominal fees.
High Credit Scores Lead To Assured Home Loan Approvals
A high credit score, one over 750, definitely increases chances of an approval on a loan. However, lenders also consider other factors such as your age, your income, the stability of your job, your location, and more before approving your application. It is important to ensure you aren’t applying for more than you can repay by watching your debt to income ratio. To avoid any rejections, use the available eligibility calculators online to measure your eligibility for a specific lender’s offering. You may also find out the amount of loan you are eligible for by using the eligibility calculator, which helps you plan your loan in advance.
So, pay no heed to these six myths and understand the basics of a home loan in order to make a truly informed decision.
The writer is CEO, BankBazaar.
BankBazaar.com is a leading online marketplace in India that helps consumers compare and apply for credit card, personal loan, home loan, car loan, and insurance.