Myths About Home Loans
One of the critical factors to have a hassle-free home loan borrowing experience is to avoid committing the rookie mistakes and believe in the various myths. Read on to know more about the common home loan myths and the truth behind them.
In India, buying a new home is considered one of the important milestones. And, since it requires a significant investment, most people start their home buying process with online research about the various properties and home loan process. However, you must know amongst the sea of information available online, finding the best and credible information source can be challenging. Not to mention, you may find several myths about home loans.
If you are buying a home for the first time, you must be aware of the following common home loan-related myths and know the truth behind them.
Higher the interest rate, higher the EMI
When the lender announces an increase in the interest rate due to the changing market condition or revision in the base interest rate by the RBI, you may presume that the EMI amount will increase. However, the truth is that an increased interest rate does not necessarily mean the EMI amount increases.
Generally, the lenders give you the flexibility to either increase the loan tenure so that the EMI amount remains the same. However, when you extend the tenure, your overall interest payment will increase. So, experts suggest that if you can afford to pay a higher EMI, you can increase the amount. But, if you are on a tight budget, extend the term so that the EMI is affordable.
Fixed interest rates are better than floating interest rate
One of the most common housing loan myths is that fixed rate loans are better than floating rate loans. Many people choose a fixed rate because they believe that it will be much affordable as the interest rate does not fluctuate as per the market condition.
However, the truth is quite the opposite. Home loans with floating interest rates tend to be cheaper in the long run. This is mainly because the floating interest rate loans are generally 1% to 2% lower than fixed rate loans. Additionally, even when the market fluctuates, the effect on interest rate is not long term, and it is usually revised within one or two months.
You cannot negotiate with the lender to revise home loan interest
This is another common housing loan myth. Many home loan borrowers believe that the home loan interest determined by the lender is non-negotiable. However, this is not true. You can negotiate with the lender and ask them to revise the same so that the EMI is more affordable.
If you have a good credit history, you can use your credit behaviour to your advantage and negotiate with the lender to revise the interest rate. Remember, even a slight concession can make a huge difference; you can save a significant amount through the loan term.
If your credit score is high, you can get your loan approved
While it is true that most lenders consider the credit score as one of the critical parameters to assess your eligibility, a high credit score does not guarantee home loan approval. This is because the lenders consider several other factors like age, professional, income, debt and liabilities, etc.
Thus, there are many myths associated with housing loans. So, before you apply for a loan, do your research well, and steer clear of such myths for a hassle-free borrowing experience.