What are some myths and facts about home loans?

When you apply for home loans, you should be aware that they are high-value and long-tenure loans. It poses several financial risks for both the lenders as well as borrowers. Lenders take measures for ensuring they receive the promised returns on their investments. You are also obligated to repay the loan on time or risk losing the asset while ignoring the myths surrounding the home loan.

Following are some myths and facts concerning the loan –

Myth 1: Lowest interest rate loans are the best ones

Fact 2: Lenders cannot offer loans below the Marginal Cost of Funds depending on the lending rate or MCLR. They must levy a minimum lending rate according to RBI guidelines. If the lender appears to quote a suspiciously low rate, you must check the additional fees involved. For example, lenders might charge 2 to 3 per cent loan processing fees as opposed to the standard 0.5 or a per cent on the house loan. They can also increase the stamp duty charges, evaluation fees, foreclosure or foreclosure costs, etc. for covering up the reduced interest rates. If you receive an attractive deal, make sure to read the hidden charges.

Myth 2: Borrowers believe they can apply loans for any property without evaluating it and does not require lenders to visit for authentication.

Fact 2: While it is a fact lender do visit the property as a part of the verification purpose, it is not a prerequisite. You must make sure you check the title deed of the property and check if dues are remaining or if there is some legal aspect involved. Only then the lender sanctions the amount. If the property documents are illegal and the loan gets sanctioned, you are held responsible for repaying it. Therefore, authenticate the property before applying for the housing loan.

Myth 3: Lenders think that since such loan’s tenure are up to 30 years, they must opt for the higher duration.

Fact 3: Going for high loan tenure is not the right way to go about with home loans in India. The longer the tenure, the more you get indebted to the bank. While a long tenure could result in small EMIs, you end up spending a lot on the interest component of the loan. In the long run, going for higher tenure could be expensive regarding the overall repayment.

Myth 4: Opt for fixed interest rates than floating rates as it generates better savings.

Fact 4: Both the home loan interest rates have their pros and cons. The only difference is a fixed rate allows you to plan your monthly budget and helps you understand the exact EMI payable throughout the tenure. However, if you opt for floating rates, you may benefit from reduced interest rates when the market falls, resulting in higher savings.