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28 SEPTEMBER, 2021
A home loan is very useful for a borrower looking to buy their dream home. However, there are various myths surrounding home loans that make borrowers sceptical of applying for one. To gain a better understanding of home loans, it is important to be aware of these myths and only trust in reliable sources for accurate information.
Common myths on home loans that you need to stop believing in:
Reserve Bank of India (RBI) fixes the broad market interest rates. It is not directly responsible for setting the interest rate on a home loan for individual financial institutions. Lenders set the interest rate of their housing loans based on their cost of funds. This is why interest rates vary from lender to lender.
The home loan interest rate that a lender is offering is surely an important factor that one should focus on while applying for a home loan. However, choosing a housing loan plan cannot be based on just one aspect. It is equally important to inquire about the lender’s prepayment penalty, processing fees, repayment plan, and so on. A borrower should choose a home loan plan only after considering all these factors.
Sure, an applicant’s credit history is an important aspect that will be reviewed by the lender. However, it is not the only one. Lenders review various factors such as the borrower’s monthly income, age, job stability, employer profile, existing EMI commitments, location, and so on before approving a loan application. All these factors play an important role in a loan application being accepted or rejected.
It is often thought that the interest rates offered by lenders on housing loans cannot be negotiated. However, this is not true. If a borrower is not satisfied with the interest rate they have been offered by a lender, they can always negotiate for better terms. With a good credit score and strong repayment capacity, it is quite possible for a borrower to get a better home loan interest rate.
The reason why many borrowers believe this is because, opting for a short repayment tenure means that the debt is repaid faster. However, it is also important to focus on the fact that a short repayment tenure would result in borrowers having to pay higher EMIs. Paying higher instalments could mean having lesser savings every month, which would be problematic in case of financial emergencies. Hence, it is considered best to apply for home loan with a suitable repayment tenure for affordable EMIs.
Applying for a home loan is a big step, which is why you need to be aware of all these myths before availing one. You can use a home loan EMI calculator and consider home loan plans offered by different lenders to understand which one is most suitable.
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