Home loans have become increasingly popular among people these days. They offer great advantages and opportunities to people who require funds to purchase a new home. But there are many things that we don’t understand about Home Loans. Or often, we are misinformed about the process of applying for a Quick Home Loan. Due to such blocks and myths surrounding Home Loan applications, the process itself becomes taxing and we sometimes end up selecting the wrong bank for the loan or end up choosing the wrong loan for ourselves. So, here is a list of the most commonly told myths about Quick Home Loans in India.
Myth 1: Low interest rates are better
It is commonly considered that Fast Home Loans with low interest rates are better. However, it may not always be the truth. There are possibilities that a home loan offers low interest rates, but also charges you legal valuation fees, penalties for prepayment, high processing fees, and much more. You always need to make sure that there aren’t any such hidden charges applied to your loan. Otherwise, you will end up paying a lot more for a home loan that seems cheaper.
Myth 2: Prepayment of the loan is the best strategy
We are always tempted to prepay the home loans immediately when excess funds are easily available to us. There are obviously pros and cons to prepayment of the loan. But it might not be the best option for you.
It makes sense to prepay the loan when the interest payout is higher during the early stages of the loan. But if you have a critical expense a few months later, then prepaying the loan won’t be the best option. Also, you can generate better post-tax returns than the current interest rate on your home loans if you don’t prepay. It would be wise to choose to invest those excess funds in other resources instead of prepayment.
Myth 3: Your employment status doesn’t matter
Having your loan approved by a bank depends on various factors. One of the most important factors is your employment status. Banks evaluate your total income, expenses, savings, existing debt, and investments. Only then will you be presented with an amount you can have as a loan. The reason for this is that the bank wants to know if you would be able to pay the monthly dues without jeopardizing your daily livelihood.
Myth 4: Your Home Loan will surely get approved if you have a high Credit Score
A high Credit Score will not guarantee that your loan will get approved. In fact, a good credit score is one of the criteria taken into consideration by different banks to determine the eligibility of your Home Loan application. Having a good credit score is crucial because if it is low, banks can reject your application.
Myth 5: The shorter the tenure, the better
A shorter loan tenure means that you will have a lower interest rate compared to a longer tenured loan. But a shorter tenure also means higher EMI compared to longer tenures. This could reduce your purchasing power. You won’t be able to save up or invest in other financial products. This could also impact your credit score and other loans you might want to borrow in the future. Some of the best banks for home loans that offer longer tenures offer good pre-payment facilities, too. Karnataka Bank’s Xpress Home Loan offers attractive interest rates for longer tenures.
Myth 6: The Rate of Interest for Home Loans is fixed by RBI
No. The Reserve Bank of India does not directly fix the Interest rates for Home Loans for different lenders. The RBI fixes the broader market’s interest rates.
There are two types of lenders – housing finance companies and commercial banks. Different banks and finance companies will offer you a different rate of interest based on their own criteria. So you should try to contact various lenders before making any decision in order to get the best value for your money.
Myth 7: Home Loans for Fixed Interest rates are better
Many people think that since the Rate of interest is set by the RBI, the rates will keep fluctuating. So it would be better to opt for a Fixed Interest Rate. But that is not the case. A Fixed Interest rate for your home loan remains constant only for a certain period of your Home Loan. The rest of the period is decided by how the market is doing at the time. It’s always advisable to read how long that fixed interest rate is going to remain constant.