25 Home Loan Myths vs Facts in India
In this modern era of information overload, finding a solution for your home loan requirement is not a difficult task. But still finding the best information for the concerned home loan should be your utmost priority. There are several myths associated with the Home loans and one must know the facts before applying.
1. Bad credit score means no home loan
You can get a home loan from many other cooperatives banks and NBFCs, even if many other main stream banks reject your request for home loans for poor credit.
2.Refinance costs penalty or charges.
You are free to refinance and transfer your home loan, in case; you are going for lower EMI and any other benefits. There are many aspects like exit fee, prepayment penalty, and foreclosure charges which have been abolished by the RBI and thus you can reap on the benefits.
3.Reducing EMI is the better option in home loan prepayment.
During prepayment of home loan, you get the option to reduce the EMI or reduce the tenure. It is a common belief that reducing EMI is a smart option. However in the long run you end up paying more interest by choosing this option.
4.You cannot get more than 80% LTV (Loan to value ratio) of the property amount.
This is also a common misbelief that you cannot get more than 80% of the loan property. You can actually raise upto 90% loan of that of property amount if loan is below 30 Lac.
5.More income gurantee better home loan amount
In fYour income is not the only criteria here. There are other factors working for the loan amount like your company category, designation/profile (for stability), credit history and current liability.
6.Increase in the interest rates increases EMI
Banks generally adjusts the loan tenure to keep the EMI constant. You have to specify explicitely if you want to keep the tenure fixed at the time of loan application.
7.Your loan starts from scratch if you transfer your loan.
When you transfer your loan, the new bank do nor repay full amount and start from scratch. In fact it prepares a new amortization chart based on your new interest rate and schedule EMI accordingly.
8.One should focus on lower interest rates.
Interest rates are imporntant but not the only factor to choose the loan product. So it is advised not to stress too much on interest rates but calculate the overall cost in the long run.
Consider other factors such as principal amount, interest, loan tenure, processing fee, file charge, stamp duty, insurance and EMIs of your loan.
9.Applying directly to banks saves cost.
In fact you may end up paying more in the long run due to lack of homework and proper information. There are various loan service providers which can help you to compare loans and find best suitable product for your requirement. Moreover their services come free of cost.
10.You must prepay your home loan if you can
Prepayment is an option with the borrowers. We would like you to know that is not always beneficial. If you receive some funds in terms of bonus or business profit, you need to calculate the interest saved on home loan vs interest gained through investment to make the right choice.
11.Interest rate remains constant throughout the loan tenure in the fixed Interest rate
Fixed rate is not in fact fixed for the entire loan tenure and is generally fixed only for a specific loan tenure after which it turns into floating interest rate.
Ex. Fixed interest rate for HDFC Home loan is fixed for 2 & 3 years. Post fixed rate tenure it varies from 9.30% to 9.80%.
12.All the DSAs or on line portals charge commission on loan amount
Many individual DSAs and online portals do not charge an extra fee for their financial services. These people charge their fees through lenders and one need not pay anything extra to get these services.
13.Nationalised banks offer better options for home loans
This is not necessarily true. While the big nationalised banks have large capital to provide multiple loan options, there are many banks, cooperatives institutions and NBFCs which offer loans best suited for various customers.
14.RBI decides the interest rate for home loan
RBI cannot directly decide the home loan interest rate. However RBI tries to ease the decision taken by the banks on interest by increasing or decreasing repo rate and amount in circulation in the economy.
15.Pre-Qualified offers means home loan sanction
Pre qualified offers does not guarantee the home loan sanction and the final outcome entirely depends on the evaluation and assessing of documents furnished by the borrowers. This is a nice way to attract the existing customers for loan.
16.Choosing your current bank is a smart thing
This is one of the common myth due to your relation with the bank and constant touch with the bankers. Otherwise after a bit research , you will find out that many banks are willing to welcome you and offer more benefits for you than your current bank.
17.Banks don’t negotiate the fee and other charges
You can negotiate with the bank if your case is strong enough interms of income, credit score and credibility. You can negotiate on various fees charged by the banks like processing fee, stamp duty, file charge and service charge.
18. Interest rates are same everywhere
Not all banks offer the same interest rates. They do vary fom bank to bank while offering you the loan. One should also check out their processing charge and other aspects which off course differ from one another.
19.Banks or NBFCs charge a penalty on prepayment or foreclosure fee
Read all guidelines of the banks regarding prepayment charges and one can also follow RBI Guidelines on prepayment or foreclosure fee to get proper knowledge regarding this.
20.Healthy CIBIL score guarantees home loan approval
CIBIL is just one of the few measure scores, which decides on the approval or rejection of the loan application. In fact, your home loan application can be denied despite having good CIBIL Score.
21.All home loans are the same
There are various home loan products available by banks, which caters different needs of the borrowers. You are advised to do your homework before you choose one.
22.Property insurance is mandatory
Generally, it is optional and one need not ensure their property in any case, to be eligible for home loan. However, some lenders have made it compulsory and thus one must read their guidelines and terms and conditions thoroughly.
23. Balance transfer is always beneficial.
As per the experts, home loan balance transfer is beneficial in the early stage of home loan tenure. However in the later stage like after some time period in the loan tenure it may prove expensive. Use home loan calculators to comapare the effective total interest to be paid.
24.Floating interest rate involves risks
In fact floating interest rates can be beneficial sometimes that fixed interest rates as the interest rates may come down any quarter. Even the loan tenure of 3 years can save significant interest amount on your loan.
25.You can’t get home loan if you don’t have 20% of the property cost as down payment.
Banks are becoming flexible nowdays in this world of competition to serve you better. You can now mortgage any existing property or take another loan to cover this cost.
Home loan is one of the most important decision in life and one must assess all the aspects of it before making a final decision. Home-loan.in is a financial service provider and helps you to get the loan as per your requirement. Contact home-loan.in for more details.Back