Most Common Home Loan Myths Debunked
Where do you go searching for information when you wish to apply for Home Loan? Yes, you have guessed it right, the internet. But, the internet contains a lot of misinformation about the Home Loans and its benefits. It has given rise to some myths. We take this opportunity to debunk some of the typical Home Loan myths.
· Lower the interest rates, better is the bargain
It is a significant Home Loan myth. We are living in a competitive world where every bank or NBFC (Non-Banking Financial Company) has to be on their toes to stay ahead of their peers. Hence, the low-interest rate gimmick is one of the most popular marketing strategies of Home Loan lenders. The financial organisations work to earn a profit. You need a huge customer base to generate the necessary income to make a profit. Hence, they come up with strategies like ‘lowest interest rates in the market’ and so on.
Go through the terms and conditions of the Home Loan Offers to find the hidden charges. Some of them are prepayment charges, foreclosure charges, and legal and valuation fees, and so on. Add these charges, and you will find out that the interest rates are not the lowest in the market. It is just a gimmick to entice more customers.
· The Reserve Bank of India decides the rate of interest on Home Loans
It was right about two and a half decades ago before the opening up of the Indian economy. The Reserve Bank used to decide the rates of interest in the olden days. Now, the banks determine the interest rates depending on the MCLR (marginal cost of funds based lending rate) concept today. The Reserve Bank has the responsibility of deciding the Repo and the Reverse Repo rates. Both these rates have a bearing on the MCLR-based interest rate, but there are other factors at play as well.
· A fixed rate Home Loan is better to a floating rate
Many people believe it to be correct whereas it is not. One agrees that the fixed rate concept freezes the interest rate at the time of the loan sanction. Your EMI (Equated Monthly Instalment) remains the same throughout the tenure of the loan. In a floating rate concept, the rate of interest fluctuates depending on the rise and fall of the MCLR.
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Banks usually resort to increase or decrease the tenure instead of meddling with the EMI. You should note that the fixed rate of interest is about 1% to 1.25% more than the floating rates at the time of the sanction. It is beneficial if we live in a regime of increasing home loan rates. However, that is not the case today. The rates are more or less stagnant or decreasing. Under such circumstances, the floating rate of interest is better than the fixed rate.
· The lenders’ authenticity checks confirm the genuineness of the title
It is true that the lender checks out the genuineness of the title to the property before approving the loan. It does not absolve your responsibility of confirming the title before purchasing the property. You have to do an independent search of the records in the Sub-Registrar’s office to verify the genuineness of the title.
There are innumerable cases of frauds in this area where unscrupulous elements manufacture fake title deeds to register properties in your name. The bank can demand the repayment of the Home Loan from you even if it turns out to be a fake property.
· Refinancing a Home Loan is not an advisable thing to do
In fact, it is hugely beneficial to go for a Home Loan Balance Transfer (HLBT), especially in the initial stages of the loan to get the benefit of reduced interest rates. There is a significant difference in the rates of interest offered by different banks and NBFCs. A variation of even half a percentage point can result in massive savings over the entire tenure of the loan. Check out the other charges associated with the HLBT such as processing fees, legal and valuation expenses, equitable mortgage registration charges and stamp duty, and so on before opting for the facility.
· You need a minimum down payment of 20% for the Home Loan
The 20% down payment is the standard norm. However, banks finance even up to 90% of the property value especially if the Home Loan is under Rs. 30 Lakhs. Check out these options on the website of Home Loan service providers like MyMoneyMantra. You can compare the various products of different banks and look at the attractive ‘loans for you at home’ plans offered by specific lenders.
We have debunked six myths regarding home loans. There are many more. Hence, it is advisable to check the facts before applying for the home loan.
Also Read: 4 Home Loans to Consider Before the RBI Hikes Interest Rates
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