A home loan is a fiscal service provided by banks and housing finance companies. It is one of the most important debts you can buy. Still, it is very important to be aware of your decisions while purchasing your home loan. Make sure that there is no space for any confusion or blunders since this is a money related decision that you have to live with for a notable part of your life. Let’s look at some of the popular home loan myths to spread awareness among new buyers.
1. Low-interest loans are most beneficial
While every applicant would naturally wish to get the lowest interest rate, most of the time its is impractical. First of all, many factors come into play when the lender determines the interest rate such as credit score, income, loan repayment behaviour etc. Second of all, while a low-interest rate looks lucrative, it would require you to choke a higher down payment, which means you have to go for a lower LTV. This might not allow you to qualify for financing of 80%, the standard funding offered by home loan experts.
Short Tenure Loan is the best option :
Essentially, a home loan is a long tenure loan at its core. The borrower remains liable to the lender for about couple of decades. Most first time borrowers assume it’s better to opt for short tenure loans. But people who choose it mostly end up paying high EMIs. High EMIS can burn a hole in one’s pocket by affecting monthly budget heavily, making it difficult to save for emergency purposes.
Thus, while short tenure loans release you from debt quickly, they aren’t the ideal option. It is best to go for a mid-tenure loan with mid-range interest rates and affordable EMIs.
3.Loan credit scores result in rejection of your loan application
All home loan companies ask you to provide your credit scores. Many applicants think that if the credit score is less than 750, their loan applications will be rejected. This is far from the truth. While there is no denying that banks are very particular about credit scores, you still have a chance to receive home loan by consulting with an HFC for the loan.
4.Fixed interest rates are better than floating interest rates
Many borrowers prefer the fixed interest rate, supposing them to be better than floating interest rates. They assume that since the market is volatile, it is better to stick to fixed interest rates. Nevertheless, floating rates are usually better. Firstly, the floating rate usually is lower than the fixed interest rate by 1.5% to 2%, which results in a lot of savings over the entire loan tenure. Secondly, even if the interest rate fluctuates, the effects are not long-term, and the rate is typically adjusted within a month. This means that one can save a lot more by choosing a floating interest rate rather than a fixed one.
Hence, These are some of the popular myths while applying for a home loan. First-time borrowers should not be misguided by believing these myths because one misstep would affect their financial outcome badly.