Home loans are the most popular choice amongst people looking to purchase their first home. This is primarily because of the flexibility offered in terms of principal, interest and repayment tenure. However, there exist a considerable number of myths in the market with regard to home loan. Let’s look at some common ones.
1. Low-interest loans are always the best
A low interest rate might be tempting, but it is not always the best option for you. Sometimes, there are costs like processing fee and legal charges that may add up and make your loan very expensive. You should not completely disregard a loan due to high interest rates. With a high interest rate should come a longer repayment tenure, which can prove to be a blessing in the long run.
2. High credit score means a guaranteed home loan
While credit scores do play a very important role in determining eligibility for a home loan, they are not the only factor considered by lending institutions. Factors such as employment status, debt-to-income ratio, amount of down payment and the presence of a co-signer are equally important. This is the reason that some people with very low credit scores succeed in securing a home loan for themselves.
3. Prepayment of home loans is always good
If you happen to be in an excellent financial situation a few years after getting your home loan, you might be tempted to proceed with prepayment of your loan. There are also numerous tax benefits that come with a home loan. If you fall in the higher tax slab, you might want to complete the tenure of repayment so as to save on taxes. While prepayment might be somewhat beneficial in the initial years of your loan, it really does no good after your loan has matured significantly. Once you have paid the majority of the interest on your loan, it is not a wise option to prepay the principal. Sometimes, there are also penalties associated with prepayment.
4. Interest rates change with repo rates
Repo rate refers to the interest rate at which the Reserve Bank of India lends money to lending institutions. While RBI declares periodical changes in the repo rate, the average cost of lending does not change radically for lending institutions. It is unlikely that you will experience a huge shift in floating interest rates for housing loans even if there occurs a shift in repo rates.
5. Securing a home loan verifies a property
It is true that financial institutions check all the documents related to possession of the property very carefully, and usually verify details from various sources. However, there are some minute details associated with your property that you must check carefully. If any property based dispute arises after your loan is sanctioned, the financial institution holds full liability over the repayment amount. In other words, you will have to repay the loan regardless of the status of your property.
You can consider getting housing loans from Tata Capital which offers quick, hassle-free process with attractive interest rates.