Buying a home without a loan is almost impossible in today’s day and age. Getting a home loan is not difficult but to be acquainted with loans and knowing the entire process could be challenging. Plus, getting a loan that fits our income and repaying capabilities is also a task. Therefore, we should do a thorough homework before applying for the loan and learn to differentiate between myths and facts.
Myth – Bad credit score means no home loan
Fact – A home loan can be acquired from any cooperative banks and NBFCs (Non-Banking Financial Company) even if any established financial institution rejects the application.
Myth – Refinance costs penalty or charges
Fact – You can transfer your home loan whenever you want to avoid paying higher EMIs. Penalties such as exit fees, prepayment and foreclosure charges have been abolished by the RBI. This allows you to benefit from the transfer and enjoy the benefits.
Myth – You cannot get more than 80% LTV (Loan to value ratio) of the property amount
Fact – A lot of people know that lenders never provide hundred percent finance but only up to 70 or 80% of the home value. That is not true, a lot of vendors provide up to 90% of finance support if the property is below 30 lakhs.
Myth – Increase in the interest rates increases EMI
Fact – Banks design the loan in such a way so that the loan tenure and EMI remain constant.
Myth – Your loan starts from scratch if you transfer your loan
Fact – When you transfer a loan, you do not start the loan from the scratch. Instead, you only pay the outstanding principal amount and any interest rate (if applicable) over it.
Myth – One should focus on lower interest rates
Fact – Interest rates are important but one shouldn’t emphasize too much on it. Other factors such as, principal amount, interest, loan tenure, processing fee, file charge, stamp duty, insurance and EMIs should be given equal importance.
Myth – Applying directly to banks saves cost
Fact – It is not necessary that if you go the lender directly, you’ll make more money. Going through service providers that help you compare features of several banks is a better option.
Myth – You must prepay your home loan if you can
Fact – Prepayment is an option not a compulsion. You can either prepay the loan with surplus cash or you can opt for investment and make more money through it. The choice is entirely yours.
Myth – Interest rate remains constant throughout the loan tenure in the fixed Interest rate
Fact – Fixed interest rate does not remain fixed throughout the loan tenure. The fixed rate is for a designated duration after which it becomes floating interest rate.
Myth – All the DSAs or online portals charge commission on loan amount
Fact – Online portals DSAs do not charge any extra money for their services. They charge the lenders and the borrowers do not have to pay anything for availing their services.
Myth – Nationalized banks offer better options for home loans
Fact – While nationalised banks may have enough capital to give multiple loams. There are many NBFCs that give better customer service and tailor make their loans for the customers.
Myth – RBI decides the interest rate for home loan
Fact – RBI cannot independently make such decisions. They do try to ease the decision taken by the bank on interest rates.
Myth – Pre-Qualified offers means home loan sanction
Fact – Pre-Qualified loans are only sanctioned after assessing and evaluating the documents. An initial offer does not guarantee a loan.
Myth – Choosing your current bank is a smart thing
Fact – Yes, it is a good practice to opt for your regular lender. But this may deprive you of more benefits and better services if you don’t browse at least few other options.
Myth – Banks don’t negotiate the fee and other charges
Fact – You can always negotiate with the bank for every aspect of the loan if your case is strong. You can negotiate on various fees charged by the banks like processing fee, stamp duty, file charge and service charge.
Myth – Interest rates are same everywhere
Fact – Not all lenders offer same interest rates. While the interest rate differs from bank to bank, one should also check for other charges and hidden rates if any.
Myth – Banks or NBFCs charge a penalty on prepayment or foreclosure fee
Fact – Learn about the pre-payment process even before you apply for the loan. This will avoid any last minute confusion.
Myth – Healthy CIBIL score guarantees home loan approval
Fact – CIBIL score is important for loans but there are other factors too, that play an equally important role for the approval of loans.
Myth – All home loans are the same
Fact – The framework of the home loans is same but the services and charges differ from loan to loan.
Myth – Property insurance is mandatory
Fact – Getting an insurance on the home loan is optional but some lenders make it mandatory. Also, in some places you have to be eligible for the insurance. So, it depends on the lender you’re borrowing from.
Myth – Balance transfer is always beneficial
Fact – Balance transfer is beneficial if only done in the initial stages of the loan. If the transfer is done in the later stages of the loan, then it may turn out to be more expensive.
Myth – Floating interest rate involves risks
Fact – Floating interest rates can be beneficial and help you save a lot of money. These rates can come down any quarter making them cheaper than fixed interest rates.
Myth – You can’t get home loan if you don’t have 20% of the property cost as down payment
Fact – This is a common notion but lenders are becoming more flexible these days. There are certain lenders willing to cover upto 90% of the property value if you have a strong income source and a good credit score.
Home Loan is probably one of the biggest loans, we as individuals take. Therefore, it is important that we measure every aspect carefully before making the final decision.
Apply for a Bajaj Finserv home loan using the loan app by Finserv MARKETS to get a host of benefits such as minimal documentation, quick disbursal, instant approval, flexible repayment etc.
Also read tips on home loan down payment only at Finserv MARKETS
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