5 Common Misconceptions About Home Loans
Homes are an important milestone in an individual’s life. Every person wishes to buy a home of their own. But due to lack of funds, it is not possible for them to buy it. Home loans are a blessing for such people who do not have adequate funds and still wish to buy a home. These home loans have many implications that would make your application process smooth only if you know about them in detail. However, if you have information which is incomplete, then there are misconceptions that crop up. Let us look at the common misconceptions about home loans that people usually think as true.
1. Long Tenure
Home loans or for that matter any loan should not be stretched for a long duration. This is a misconception that people take a long-tenured home loan. However, the truth is that the shorter your home loan is, the cheaper your home would be. If you stretch the home loan for a long duration, then it would be difficult to repay your loan for such a time. Also, it would increase your interest component which is the main player in making your home loan expensive.
2. Pay off your loan first
People who take the home loan always try to repay the loan completely first and not focus on other investment options. This would be a huge setback for them in the future. When you have been given an EMI for your tenure, you can focus on other finance and investment options so that you can work on securing your future. But if you focus only on the repayment, then you would not have adequate funds to secure your future and this is not a good sign.
3.Fixed Interest is always good
Interest rates play a major role in getting your home loan become expensive or cheaper. There are two types of interest rates that are prevalent in the home loan market i.e. fixed and floating interest rates. Fixed interest rates stay the same from the start of the loan tenure till the end of it. It is not affected by any of the parameters such as SLR or repo rate and floating rate does. So, if the SLR or the repo rate goes down, the interest would also dip making your home loan cheaper. This can also go up making your home loan expensive.
4. Refinancing is a Sin
Refinance of home loan is a good option only if the difference between the refinancing and old home loan is a positive figure. This would mean that you would change the hands of the lender so that you can benefit on your interest component and make your home loan cheaper. It may be possible that you may be on a fixed interest rate and would like to go on a floating one, but do not have the option to do so with the current lender. Then you can change the lender and make your home loan cheaper. If this is not the case then refinancing your home loan is not a good decision.
5. Foreclosure is always expensive
Foreclosure is paying off your loan in advance of your tenure. Earlier banks used to levy a 2.5% prepayment penalty on the outstanding loan amount. This would increase the loan cost and it would be wrong to do so. But with the changed guidelines, it is now better to pay off your home loan if you are on a floating interest rate. This would mean that you would not have to pay anything extra to foreclose your home loan and make your home cost you lesser than what you had planned.
Banks have home loan EMI calculators available on their websites and you can calculate all the figures you have in mind to look at your future finances. It is a good way to know what is coming your way. This can also help you to compare home loans to other banks even before you apply for a home loan. There are many other misconceptions about home loans in the market. However, the most common ones are listed above to give you a heads up before you get into it.