As real estate prices have come up over time, it has become increasingly difficult to shortlist and buy a house that suit all our needs. Due to these reasons, many of us avail home loans while buying a house. Home loan makes it easy when it comes to funding the cost of the property as it takes care of a certain percent.
While home loans come to our rescue, there are certain misconceptions about it. Individuals who are not wary of all facts when it comes to home loans can fall prey to it. If you are one of those individuals who is planning to buy your dream home by availing a home loan, this article is for you as we look at five such misconceptions about which you need to know. Read on to know more about it.
- Prepayment – Prepayment of a loan is always welcome as it helps in bringing down the total repayment amount. However, many believe that it is not best option as they think all banks levy a high interest when it comes to prepayment of home loans. This is not true because as per RBI instructions, prepayment charges can be levied on only fixed rate-based home loans. It can’t be levied on floating rate-based home loans.
- Importance of Credit Score – Nowadays, credit score plays an important role when it comes to the approval of your home loan application. However, that does not mean that simply having a good credit score will result in your application being approved. Other factors like income, profession, expense ratio, and current obligations are also considered by the lender before approving the application.
- Banks do negotiate interest rates and charges – While you can go for the lender which offers the home loan at the lowest interest, it is suggested that you approach the bank where you are already a customer. This is because many banks as well as housing finance companies offer discount on the interest rate and charges to a certain limit depending on the borrower.
- Interest rate – When availing a loan, the first thing that is looked at is the interest rate. While going forward to avail the loan from the lender which charges you the lowest interest makes sense that should not be the only criteria. Other factors like processing fee, legal charges etc. should also be considered as they also influence the cost of funds.
- Maximum loan to value – Many individuals think that the Loan To Value (LTV) is restricted to 80 percent of the property value. However, this is not the case. It can go up to 90 percent of the property value after lenders go through the credit history of the borrower. Ensure that you have a good credit history as it may come in handy.
Before availing a home loan, consider the above-mentioned points. It will be helpful in taking an informed decision when it comes to home loans.