Myth # 1 Low Interest Rates Are Only Criteria
Applicants are immediately attracted to lenders which offer the lowest interest rate against their home loan. They make their decision based on low-interest rates without understanding other loan parameters. The interest rate charged by banks is determined by a number of factors such as your credit score, income, repayment behaviour, etc. A bank charging lower interest rates from a borrower may be levying high loan processing fees, prepayment penalty (if any), other additional charges, etc. Hence, analyze the loan terms holistically while comparing various loan offers instead of limiting it to interest rates.
Myth # 2 Your credit score must be flawless
It is a misconception that if your credit score is lower than 600, your loan applications will be rejected automatically. With some supporting documents, you can prove that you are credit worthy for a housing loan. The option of having a co-signer/borrower can also help to reassure the lenders. Even if your credit report has some defects, you can raise your credit score by ensuring your payments on time every month and paying as far above the minimum payment as possible.
Myth # 3 Always choose a short tenure loan
At its core, a home loan is fundamentally a long tenure loan. The borrower remains indebted to the lender for up-to two decades. Most first-time borrowers believe that it is better to opt for shorter home loan tenure. But people who choose short tenure loans typically end up paying High EMIs. It can seriously have negative impact on your monthly budget, leaving you with little room to invest for other important financial goals. This might have a negative impact on your credit history and your future loan eligibility.
Myth # 4 Fixed interest rates are better than floating
Many home loan applicants consider fixed interest rate to be a better option than floating interest rates. However, very few banks offer fixed interest rate for the entire tenure. Usually, it is seen that banks charge higher interest rates on loans for fixed rate home loans to reduce their own interest rate risk. Most of the banks or non-banking financing companies usually offer mixed rate home loans whose rates remain fixed for a certain period of time and after the end of that tenure, floating rates become applicable.
Myth # 5 Pre-payment Always Brings In Penalty Charges
The Reserve Bank of India has restricted all banks, NBFCs and HFCs from penalising pre-payment on floating interest rate home loans. This has made applicants of all floating rate home loan free to make pre-payment or foreclose loans without facing any prepayment penalties. In case of fixed-rate loans too, many lenders do not charge prepayment charges if borrowers prepay from their own funds.
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