“Buying your own house” is on every person’s bucket list, and we as millennials strive hard to achieve this goal. The first step generally, is a google search for the perfect home loan. Striving around checking out the first home loan calculator.
Let’s be honest, a home loan isn’t everyone’s cup of tea!
Owning your own house gives you a feeling of utter satisfaction, but it is not easy – especially if you don’t want to fall a prey to the home loan myths prevalent in the market. The rising income levels and increasing aspirations are the primary reasons why youngsters wish to own a home in the former phase of their lives. Nonetheless, a few of them are misguided by one or all of these misconceptions that surround a home loan in India.
In case you’re wondering what these myths are, worry not because we got your back! If you are planning to buy a house, and before you go looking a home loan emi calculator you should first go through these six myths that might distract you from the actual truth.
Here they are:
1. Home loan can finish off quickly if you choose the shortest home loan tenure.
Most millennials have a belief that opting for the shortest-possible tenure will help them to close the loan quickly. What they do not realize here is that by choosing this path, they end up stressing their finances because shorter loan tenure directly means higher EMI (equated monthly installment) payout. One needs to understand that higher EMI payouts take away a huge portion of your monthly earnings. Moreover, this may also turn out to be harmful to your next credit approval’s chances, due to a higher FOIR (Fixed obligation to income ratio).
Always make sure to choose a plan with longer repayment tenures, so that you do not burden your finances with higher EMIs. Not only this, if you ever feel you have surplus funds, you can always prepay your home loan, either partially or fully.
2. You can’t negotiate on the interest rates.
Yes, there are people who still think that interest rates offered by for home loans aren’t negotiable. If you are one of them – get your myth busted. If you feel dissatisfied with the rates quoted by the lender, you can always try to negotiate with the lender for a lower interest rate – only if you have valid reasons.
For better explanation, here is an example. If you have a high credit score or a strong repayment capacity, you may negotiate with the lender to offer lower interest rate and better service terms. Then, if the lender agrees it is a win-win situation. If not, you can consider changing your lender.
The best way to find the most suitable lender is to compare offers online on a financial marketplace. These platforms allow you to conveniently compare and choose amongst various available lenders. Not only this, they help you choose the right lender as per your need and financial position.
3. The lenders who offer lowest interest rates are the best.
No. It is not true. We agree that the interest rates on home loans vary between 8.45% to 11.75% and it does play a very important role in choosing your home lender.
BUT, it shouldn’t be the only reason behind making the decision. You should also keep an eye on other factors such as services offered (such as top up loan), terms and conditions, maximum tenure, repayment options, modes of payment etc., before you narrow it down to one lender.
Find a lender who offers all such services along with providing a lower interest rate. It might be possible that one offers a slightly higher interest rate but provides better services.
4. Home loan approval is guaranteed if you have a High credit score.
This is a very big misconception among borrowers. We agree that a high credit score definitely increases your credit approval chances – BUT it does not guarantee it. There are a lot of factors that determine the status of your home loan, be it borrower’s age, income, debt to income ratio, job and employer’s profile etc.
For knowing your eligibility regarding home loans, you can use online loan eligibility calculators, because then there is no need to apply for the loan and wait for the lender’s response.
5. Prepayment and foreclosure are dealt with heavy penalties.
One of the most common myths among people is that the lenders levy heavy penalties and fees upon prepayment or foreclosure of loan, which is not at all true. If we quote RBI’s instructions, “lenders cannot charge any prepayment/foreclosure charges on floating rate-based home loans.”
This is not the case with fixed rate-based home loans. Such charges may be levied by the lender under fixed rate based home loans.
6. Interest rate hike means heavy EMIs.
Whenever RBI increases the interest on home loans, most of the home loan borrowers assume that their EMIs will now escalate, ruining their monthly budget. This is true to an extent, because before raising the interest rates, lenders usually offer to extend your loan tenure to avoid an increase in your monthly EMI. The decision is totally yours – however, and you should increase you EMIs because extending the loan tenure results in increase in the overall interest payout. Moreover, the hiked interest rate is applicable only at the end of your home loan’s reset period.
Now that you know about all the myths that prevail in the home loan industry, you can finally realize the truth and make your home hunt easier! All the best!