Owing a house of their own is a dream of almost all the families in India. We Indians give predominance to own home be it small or big. But the rising rates of properties and demand for houses in posh locations will eat away almost everything from your hard-earned savings. Inevitably, most of the people who are planning to purchase a house will have to apply for a housing loan from banks, financial institutions to foot the bill.
Before applying for one, it is essential to make an informed decision and be clear cut about everything by ensuring that there is no room for confusion or mistakes. The financial decision which an individual makes at the time of securing a home loan will stay with them for a significant part of their life.
So, Check These Myths Before Applying for a Home Loan.
Short Term Loan is Best Bet
It is a wrong myth that short term loans are the best ones and the fundamental truth when it comes to a housing loan is the long tenure ones are the best bet. As the borrower will remain indebted for a long time to the lender (bank/financial institution).
In the case of short-term loans, the equated monthly instalments (EMI) will be relatively higher as against the long-termed ones.
Higher EMIs will affect your monthly budget expenses leaving you little scope for saving for any windfall situation. Though short-term loans help the borrower to quickly pay back the loan amount they are not an ideally suitable option.
So always go for either mid-term loan at affordable EMIs within the mid-range interest rates which will be easy on your pockets.
Rejection of Loan Application Due to Low Credit Score
Though most of the banks do ask for a credit score of the applicant, it is not true that the credit score alone will decide on the fate of the loan application. A credit score of above 700 is considered as good.
Most of the leading banks are strict about the credit scores and having a good credit score will help you to get a home loan approved quickly. But if the credit score is low then you can approach a housing finance company which do offer a home loan for those who have low credit score but they will have to pay higher interest rates.
Fixed Interest Rates Better as Against Floating Interest Rates
It is a wrong myth that fixed interest rates are best when it comes to a home loan. Floating interest rates are generally better. It is the notion of a common man who thinks that since markets are volatile and unpredictable a fixed interest rate is the best and they go for fixed interest rates.
The floating rates are generally low when compared with the fixed ones in the range between 1.5% - 2.00% and this itself will result in a lot of savings over the entire period of the loan. Apart from this, even if there is a fluctuation in the interest rates, its effect will be minimal over a long-term period and usually, the rates will be typically adjusted within a month.
So always go for a floating interest rate than a fixed-ones as this will help you to save your money.
Lower Interest Loans are Best
Almost all the applicants prefer to have lower interest rates on their home loan but the interest rate on a housing loan will be determined by the lender based on several factors including your income level, tenure of the loan, credit score, loan amount and so on.
Though low-interest rates look attractive, at the end the borrower may end up paying higher down payment amount and you may have to settle down for a lower loan to value (the ratio of a loan to the value of a purchased asset) ratio.
Thus, you may not qualify for financing of 80% of the property value which is the standard funding offered by most of the banks and financial institutions.