5 Common Myths On Home Loans Demystified
Buying a home is not an easy task. It takes your savings, your time, and a lot of analysis to understand and choose a property that you want to buy.
Adding to that the cost of homes these days, it has become imperative for the common man to consider taking a home loan.
But with so much paperwork and a lack of understanding, it often becomes a grueling task with several myths discouraging us from the prospect of buying a home.
Here we debunk 5 common myths about home loans:
The shorter the tenure, the sooner you can close it
A lot of people tend to follow this myth and end up regretting it in the long run. A lot of buyers tend to go for a home loan with the shortest possible tenure in order to let it close soon. But with a shorter period comes higher EMIs which end up as lower liquidity in their accounts. This reduces their purchasing power for a major investment in the future and may also lead to defaulting on the payment of EMI. Instead, a loan taken for a longer period of time has reduced EMIs leading to a sizeable reduction in burden and it also offers pre-payment facility.
Lowest interest rates = Best loans
There are various loans available with varied interest rates. You might get attracted to the loans with low-interest rates and end up applying for the same. Another pitfall some people end up falling in is the hype over lowest interest rate. With so many banks offering various loans at about same interest rates, it becomes important to understand your requirements. While it is true that low-interest rates might mean low EMIs, it might not be fruitful if the sanctioned amount does not meet one’s requirements. Hence, using only low-interest rate as the criteria for making the choice may not really be a wise option.
Fixed rates are better than floating rates
The prevailing market scenario influences loans just like the stock market. People seem to believe that the experience of someone they know can fit in their case when it comes to loans.
This is not true as interest rates depend on the income, the ability to pay, and age among other factors.
There is no clear winner between fixed and floating rates with both having their merits and demerits.
Fixed interest rate means that you will be repaying the home loan in fixed equal installments throughout the loan term.
On the other hand, floating interest rate varies with the market scenario. Floating rates depend on factors like Cash Reserve Ratio (CRR), Marginal Standing Facility (MSF), reverse repo rate, and Statutory Liquidity Ratio (SLR), which is not what happens in the case of fixed rates.
Floating rates can end up being lower or higher than fixed rates and hence there is no clear rule as to which situation may work out in your favor.
So the choice to choose interest rate should be a personal one instead of being influenced by someone else’s opinion.
Shifting the loan to some other bank/Refinancing means repaying from scratch
A major misconception at large, this has led to a lot of people choosing to continue with the same bank despite having a choice to avail a better offer from a different bank.
It is a smart move to switch banks if a person gets a better deal during the repayment stage as it may not only lead to lower EMIs but also help change provisions that are not according to you.
The banks will have to work out a schedule between them but you may end up getting a better offer with additional savings. This is one of the best ways to lower the EMI.
It is not possible to get a good loan without having a 20% down payment
An earlier rule stated that 20% down payment was required to take a loan. But in recent times banks have changed that to suit the needs of all sorts of customers. It is now no longer important to present 20% as down payment. The person may just have to provide a mortgage or to take another loan for the amount that has to be paid. Or choose any of the schemes that banks have been employing lately such as 10:80:10.
We, at Omaxe, understand that getting your finances in shape can be a tall order. Therefore, our financial executives help you make sense of all of the details and help you organize, manage, and optimize your finances. We ensure to make recommendations based on your overall goals and wealth accumulation strategy.
With the eradication of these common myths, it would now be easier for you to scour the market to get the perfect loan deals. So go ahead, the dream home awaits you.