A lot of first time home loan applicants tend to commit several rookie errors. Read on to know more about the five common myths that you must know.
In India, buying a new home is on everyone’s wish list, and most people take their first step towards purchasing a home by doing online research to find information about a home loan. But, you must know that amongst the sea of information, finding the correct information can be challenging. Not to mention, there are several myths that you might find here and there.
If you are a first-time home-buyer, you must be aware of these common myths.
High credit score means better chances of getting a home loan approved
A lot of home loan buyers have this common misconception that if they have a higher credit score, the lender will approve their loan without any hassles. But, the truth is that while a higher credit score improves your chances of getting the loan, it does not guarantee approval.
Apart from the credit score, the lenders consider many other factors like the age, income profile, business income, occupation, dependant family members, debt to income ratio, etc. to ascertain the eligibility. The best way to know how much loan you can avail from a specific lender is to use the emi calculator for a home loan. It is an easy-to-use online tool that allows you to know the exact amount you can borrow based on your income details you input.
Higher interest rate increases the EMI amount.
When a lender announces an increase in the home loan interest rate, the borrowers tend to presume that their EMI (equated monthly instalment) amount will also increase, and disrupt their financial planning. However, the increased interest rate does not necessarily mean your EMI will increase. In case of increase in the interest rate, the lenders give borrowers the flexibility to extend the loan term so that their EMI amount remains the same.
And, as a borrower, since you have to make the decision, experts recommend increasing the EMI provided you can afford to repay the amount as extending the tenure means your overall interest cost will increase. But, if you are on a tight budget, you can extend the term to keep the EMI affordable.
There is no scope for negotiation on the home loan interest rate.
Most home loan borrowers assume that they are obliged to pay the interest as determined by the lender. However, the truth is, if you find the interest rate is too high, you can negotiate the interest rate and revise the same so that the EMI is affordable.
For example, if you have a good credit history, or if you have always maintained a high credit score, you can use this to your advantage and ask the lender to revise the interest rate. And, in most cases, if the lenders are convinced that you will repay the loan on time, they offer a discount on the interest rate. Even a 0.5% discount on the interest rate can help save a sizeable amount in the long run.
Fixed interest rate loans are better than floating interest rates
This is one of the most common myths about home loans. Many home loan borrowers choose a fixed interest rate home loan because they believe it is cheaper as the interest rate will not be affected by the market fluctuation.
However, experts suggest that the floating interest rates loans are better and cheaper than fixed interest rate loans in the long run. Firstly, the floating interest rate loans are usually 1% – 2% lower than fixed interest rate loans. Secondly, even if the market fluctuates, the effects are not long-term, and the rate is usually affected within one or two months.
Final Word
Thus, there are many myths about the home loan. Make sure to do your research well, and get help from an expert to understand the intricacies of the home loan before you start the application process.