Seven misconceptions you should clarify about house loans
Today’s homebuyers frequently use house loans to finance their purchases. There are still a lot of misunderstandings concerning this popular loan kind. The cause for the myths is based on stale and half-baked information obtained from others. Here’s a rundown of typical home loan myths and misunderstandings.
The interest rate on the loan will adjust immediately
Borrowers who choose a variable rate of interest believe that an increase in the repo rate will automatically affect the interest rate paid on their loan. The Reserve Bank of India loans to commercial banks at a rate known as the repo rate. However, a change in the repo rate may not have a major impact on the bank’s average cost of funding. As a result, borrowers must be aware that in the case of an upward repo rate modification, their loan rate may or may not be affected.
Loan acceptance is almost guaranteed with a good credit score
On average, a good credit score is seen as the key to a loan acceptance. That, however, is another urban legend. The acceptance of a house loan is not contingent on a high credit score. Other elements that impact the underwriting decision include income, expense ratio, current commitments, borrower’s industry, and firm employed with.
Loan has been taken out on a property
On the property, the bank performs due diligence. The borrowers, on the other hand, are equally responsible for verifying the legitimacy and accuracy of the papers. In the event of a future dispute, the bank’s loan responsibility will remain unaffected, and the borrower will be unable to avoid payments
Loan with the lowest interest rate
While it is expected that a home loan at a lower interest rate means the borrower would obtain the greatest deal, this is not the case. Although interest is an essential component, it is not the only one that determines the cost of financing. Processing fees, legal fees, and other fees all contribute to the total cost. Also, the level of service provided after the loan has been booked should be taken into account. Because house loans are often for a lengthy period of time, the possibilities of one service being required are relatively significant.
The maximum LTV (loan to value) is capped at 80%
While the LTV is usually limited to 80 percent of the property value, it can go as high as 90 percent if the loan amount is limited to Rs 30 lakh.
Pay off your mortgage early
Any debt prepayment is a good policy, but it isn’t the greatest. Particularly when it comes to the finalization of the house loan. First, given the house loans on low-interest rates, one should consider if investing the money needed to repay the loan would yield a larger return or not. If you answered yes, it could be a good idea to put your money to work. Second, the length of time a loan has been in service will be taken into account in this determination. The share of the primary components grows with each subsequent year of loan service. So, if you’ve taken out a multi-year debt but have already deployed for a decade, it could be a good idea to keep paying it off because you’ve already paid a large portion of the interest.
Interest and charges aren’t negotiated by banks
Housing financing businesses and banks, like any other business that wants to keep a good client, may provide a reduction on fees and interest rates to entice you to do business with them. As a result, asking for it is not a bad idea. Given that these are large-ticket loans, even a little variation in interest or charges may save a significant amount of money.
The home loan myths listed above are the most common ones. Because it is a long-term commitment, it is necessary to be aware of the product’s significant subtleties in order to make an informed selection.
