Do you want to own your dream house but you don’t have adequate funds? Don’t worry as you can take a home loan to fulfill your desire. If you are a first-time home loan borrower, it is imperative you have a holistic comprehension of the home loans and other related things to the home loan so that it is easier for you to manage the funds at a later stage.
When you don’t have the right information, it is understandable to have doubts and myths related to home loans and can lead to making wrong decisions. Following are some of the common myths related to the home loans in India –
Myth #1 – Adopt the shortest repayment term to close the loan soon.
If you have made a decision to choose a home with fluctuating interest rates, there are more chances of going up or down, pretty much the same as the stock prices. Considering this, most of the borrowers tend to choose the shortest tenure possible. Make sure you don’t commit the same mistake. If you are paying off your loan in a shorter tenure, this means that the EMI will be on the higher side.
Worst of all, you won’t be able to make any other investments as well. In addition, high EMI will also be difficult to pay and you end up defaulting on your EMI payment. One of the best ways is to choose a longer loan term.
Myth #2 – Fixed rates are better as compared to floating rates
Most of the borrowers feel that a fixed interest rate is far better than a floating rate of interest. But, this is a major misconception that the people have. Which rate of interest will prove beneficial to you will depend on the present market conditions. Floating rates are dependent on elements such as SLR (Statutory Liquidity Rate), MSF (Marginal Standing Facility), and repo rate, which things are different with fixed rates.
Contrary to the belief that the fixed rates are more beneficial than the floating rates, both interest rates can prove beneficial. If the interest rates come down, as a borrower you will have to face a loss if you are paying a fixed rate, whereas the same situation can prove lucrative to a borrower if he has opted for floating rate of interest.
Myth #3 – Higher interest rates will raise the EMIs
In the event where the government increases the interest rates, most of the borrowers think that they will have more pay increased EMIs as well. But, this is not true. Usually, when the interest rates are increased, the bank also raises the home loan term as well, so that the borrower don’t get burdened with the EMIs.
However, this decision is mainly influenced by varied elements such as current income, ability to repay the loan, age factor, etc. If you are interested in increasing your EMIs and want the same term, you can reach out to your bank.
Myth #4 – Home Loan should not be refinanced
One of the common myths about the home loans is that they should not be refinanced. If a bank is offering lower interest rate as compared to your existing bank, you can always refinance your loan. This is one of the best ways to lower down your EMI. In addition, you also have the provision of having the term of your loan changed and changes to your interest rates can also be made.
Myth# 5 – Banks can charge heavy penalties on foreclosure/prepayment of home loans
Earlier, if you are taking a home loan, the bank used to charge the penalty on prepayment/foreclosure on home loans. As per new notifications issued by RBI, the banks have been instructed not to charge penalty from the borrower. Now this means, if you are interested in prepaying the loan amount, you are free to do so and you don’t have to worry about any penalty.
Myth #6 – Choose Home Loan for Tax Deductions
Home Loan Tax Deductions is a major attraction for most of the borrowers. In the past, there have been various cases where the borrowers are being forced to opt for Home Loan even though they didn’t express any need of same. This is one of the myths based on the inaccurate representation of the information.
Though, it’s not that this information is completely false. There are cases wherein both husband and wife opt for a home loan for the joint property. In this case, if both of them come under the highest tax bracket, it might prove beneficial to opt for a home loan. The whole scenario is quite subjective and will depend on case to case.