t can be tricky to obtain a good home loan and more so if you’re scouring the market looking for a reputable bank to offer you a hassle free home loan, you need to do a lot of home work. First time buyers are always at risk of signing up for the wrong home loan. Bank representatives aren’t always the hardworking, trustworthy chaps as they are portrayed in those feel-good TV advertisements. If you’re ill at ease with the complicated process of loan borrowing, they won’t hesitate to sell you the costliest home loan in their kitty.
You need to get the details about both the debt consolidation myths and truth. There is a need to follow the truth to have the desired results. Do not always dependant on the advertisements available on the television for taking home loan.
Secondly there are several half baked truths and myths that home loan buyers have been conditioned to believe as sacrosanct – and even experienced borrowers tend to confuse home mortgage facts with fiction.
So if you’re planning to apply for a home loan to purchase your dream house, this article will help you dispel the five most popular home loan myths:
An Interest Rate Hike Means Higher EMIs
A lot of people continue to believe that a hike in the banks interest rate automatically increase the EMI amount.
It’s a huge myth that needs to be immediately checked. The fact is that most banks simply increase the loan tenure and charge the same EMI from their borrowers.
That however, usually depends upon some valid factors like the borrower’s age, his income and the value of his property. But by default it’s the tenure that’s extended, and borrowers usually see no visible impact on their EMI due to hardening interest rates.
As a borrower if you don’t wish to prolong the term of loan repayment, you can inform the bank about your decision to pay a higher EMI
Myth II – You are always penalized for prepayment
Another popular myth that borrowers hold as sacrosanct is the idea that prepayments is always accompanied by heavy penalties. That’s simply not true. For example, you will probability be penalized for prepayment, if you change a lender within 3-4 years of taking the loan. However, the charge reduces over the time and becomes negligible once you cross the 10 year threshold. The nature of prepayment usually depends on the financial institution you borrowed from. Some banks decide to penalize, others choose to ignore it. It’s best to get in touch with your lender and discuss various options that help you to avoid the prepayment penalty.
Myth III – Low Interest Loans offer the best deals
This does translate to pocket friendly EMIs, but may not suit your requirements, especially if the sanctioned loan fails to meet your requirements.
If according to the lender, your evaluation score isn’t up to the mark, the low interest rate will be of little use to you. Moreover, as a borrower you should dig deeper and find out if the benevolent bank is actually offering the best deal. Thus you should also study their valuation and inspection charges, processing fee and other adhoc fees very carefully. A lot of home loan schemes that look attractive on the surface, have several strings attached to them like high penalties on prepayment, no flexibility on payments etc.
MYTH IV: My employment status is of no concern to the bank
It’s a myth. Most home loan agreements categorically state that banks need to be informed if the borrower switches or loses his job, or retires, within seven days of the event. In this case as stipulated by the home loan clause, the borrower would have pay the home loan from the amount he/she receives the employer. However, while this clause exists, its rarely used and banks usually prefer to renegotiate the terms of payment with the borrower and arrive at revised re-payment schedule.
Myth V – Property insurance is not my responsibility
You could land yourself into serious trouble if you hold on to this myth. Most home loan agreements contain a clause which clearly states that mortgaged need be insured by the borrowers against natural calamities. However, if you have not taken the insurance, the clause states that banks may themselves do so and debit the interest from your home loan. This clause may not apply to you if you live in a co-operative society, which has insured the entire complex.