So basically a home loan is a type of financial service provided by the banks and real estate finance companies. It is always important that you make informed decisions while taking out a home loan. Make sure there is no room for any confusion or mistakes because this is a financial decision you should stay with for an important part of your life. So, we come up with some real-life home loan stories so you don’t have to make mistakes while taking out this expensive loan.
- Myth 1: Low-interest rates are the best
While every applicant tends to earn a much lower interest rate compared to his or her home loan, it usually does not work. First of all, the interest rate is determined by the lender based on a number of factors such as your debt, income, debt repayment, etc. Second, while low interest rates may seem attractive, it could mean that you would have to pay a higher interest rate. Thus, you should choose low-cost LTV. The result can be that you may not be eligible for an 80% subsidy, which is a standard fee offered by mortgage lenders.
- Myth 2: It is best to choose a short-term rental loan
Its essence, a real home loan is a long term loan. The applicant or the borrower remains in debt to the lender for twenty years. Many early borrowers believe it is better to opt for a smaller rental loan. But people who opt for a short-term loan usually pay higher Monthly Estimates (EMIs). Top EMIs can greatly affect your monthly budget, leaving you with little space to save money or anything in financial emergencies. So, while a short loan helps you get out of debt very quickly; they are not really right. It is best to choose medium-term loans with low interest rates and affordable EMIs.
- Myth 3 – Lenders reject loan applications when your credit scores are low
All home loan providers ask you to repay your loans. Many applicants also firmly believe that if the credit score is less than 750 points (900), their loan applications will be automatically rejected and therefore avoid applying for a loan, at all. The truth, however, is that while banks are tight with schools, you still have the opportunity to get a mortgage loan approved by going to HFC for a loan. HFCs are willing to make concessions to lenders with low credit scores, but they charge high interest rates for doing such.
- Myth 4 – Fixed Rate of Interest is better than floating interest rates
Many lenders prefer fixed interest rates, considering them to be much better than the floating rate of interests. Since the market is unpredictable they believe that it is better to stick to fixed interest rates. However, floating prices are usually better. First, the floating rate is usually lower than the interest rate by 1.5% to 2%, leading to more savings over the entire loan period. Second, although interest rates fluctuate, the results are not long-term, and the rate is usually adjusted within a month. You can save more by choosing a floating interest rate than fixed.
- Myth 5 – Lenders charge prepaid loan fines in advance
While previous lenders used to pay prepaid bills by blocking pre-residential mortgage loans, they are no longer valid. The RBI has barred all banks and HFCs from imposing advance payments on floating interest loans. In the case of fixed interest loans, lenders are not able to collect any repayment costs in advance, after a certain number of years (usually five years). So you can close your mortgage without worrying about having to pay the fine in advance.
So keep the above-mentioned myths and facts in mind when applying for a home loan.