Home loans are the most significant and useful financial tool provided by banks and housing finance companies. However, a home loan is considerably misunderstood as a debt that comes with a burden of repayment in monthly EMIs. Thus, to understand the optimum utilization of home loans, you need to understand and be clear and put the common myths attached around the home loans.
Myth 1-You can lend the home loan for the full value of the property
It is one of the most common myths amongst first time home buyers that you can borrow a home loan equivalent to 100 percent of the property value. The truth is home loan is given amounting to 70 to 90 percent of the total property value depending upon the market value, condition, and resale value of the property.
Myth 2- The lowest interest rate is the best
Selecting a home loan based on the lowest interest rate could be the biggest mistake and the most common home loan myth. Evaluate the home loan options in detail for hidden costs like processing fees and valuation charges etc. The interest rate on your home loan is decided on the basis of your credit score and repayment history. Also, a low-interest rate might look attractive in the beginning but you would have to provide a higher down payment. Always go for a fact check and finalize the home loan that best suits your needs. The low-interest-rate might not be the best deal for you and hence, don’t be blinded by it.
Myth 3- Shorter tenure is the best option
The home loan is conceptually a long tenure loan. Most people have the mindset that a home loan for a shorter duration will be a better choice; however, it would lead to high Equated Monthly installments (EMIs). On one hand, a high EMI can put a burden on your monthly budget but make you debt-free earlier, on the other hand, a low EMI can ease out the monthly financial pressure but stretches the debt period for long. Opt for a mid home loan tenure to create a balance between affordable EMIS s and right duration.
Myth 4- The fixed interest rate is to be preferred over the floating interest rate
One of the common myths floating around the home loan is fixed interest rate is better as compared to floating interest rate since it doesn’t fluctuate. However, the floating interest rate has its own benefits- It is usually lower than fixed interest rate up to 2 percent, which could make a lot of difference in savings over the home loan duration. Moreover, as per the current scenario interest rates are declining, hence, the floating interest could be a beneficial choice.
With so many options made available by the various banks at competitive rates, it could be difficult to narrow down on the right option. The key is to fully understand the type of loans, interest rates, and tenure to eliminate the misconceptions. Ensure that you are aware of all the required mandates and clauses of the home loan as it is one of the major financial decisions you have to live with for a considerable part of your life
