A home loan is gaining a lot of popularity among the borrowers at present. Everyone dreams of having a house, but when it comes to the budget, people tend to step back.
Here we opt for taking a home loan from any financial institution or a bank with certain documents and procedures. But, we have many misconceptions regarding housing loans, which we develop from some unreliable sources, incomplete information received from people, and lack of knowledge.
The purpose of this post is to create awareness amongst people about the common myths they have and their fact.
We have listed some five common myths and their facts about housing loan.
RBI fixes interest of housing loan
Fact- In the past few years, Reserve Bank of India has cut down the repo rate by 1.25%. i.e., the rate at which the central bank lends money to any commercial bank while a shortage of funds. RBI has no role in fixing the interest rate of housing loan. It only drafts the policy of increase or decrease in the cost of funding for banks. A change in policy by RBI may not result in changing the average cost of funds provided to the bank. It depends upon the bank to borrow the funds or not.
A high credit score assures you of loan approval
Fact- Generally speaking, a high credit score is considered as a key for almost all the loan applications, but it is again a common myth that people. Having a good credit score will not give you surety of loan approval because there are many other factors to look out for, such as expense ratio, annual income, the background of employers, or type of industry one is working in.
Low-interest rate is the best deal
Fact- Borrowers are easily attracted to the banks which offer low interest on a home loan. But, the low-interest rate does not guarantee you the best deals you assumed. Maybe the bank will charge you more on processing fee, additional fees, prepayment penalty, and levy charges on post-booking of loan. So, it is essential to analyze the long terms of home loan before having one.
Interest and other charges are not negotiable
Fact- One can easily negotiate for the interest and charges on a home loan with the banks. The banks or any other housing loan company may give you some discounts on the additional charges and offers you with low-interest rate to get your work done. So, read all the terms, and do not hesitate to ask for better interest rates and low charges, a small difference can create a significant impact on your financial debts.
Prepayment is the best scheme
Fact- Borrower who prepays the loans at the time of closure is not one of those smart decisions they make. But, if you opted housing loan with a low-interest rate, then you should better formulate your investment to repay the loan that will gain a higher return. You may be vigilant to invest your excess funds, but the tenure of the loans should also be considered while choosing this scheme. Suppose, if you take a housing loan for ten years and have already paid interest for seven years, then it is not a good idea to continue repaying the loan since more than half of interest is already paid.
Above are the common myths about housing loans listed for your knowledge; everyone should be aware of the vital implications of the product since it is a long-term liability you take.