Excited to buy a new house? It is quite common to be bamboozled with the tons of loan schemes offered by numerous banks and NBFCs. You must choose a home loan, considering your income sources, existing assets, and credit score. Read on to know more about the biggest home loan myths, home loan rates, and other information that will help you to choose the best home loan for yourself.
Biggest home loan myths
- High-interest rates always mean higher EMIs
Lending institutions will always try their best to make sure that you can repay the loan amount. Naturally, hearing ‘high-interest rates’ and paying bulky settlements every month can discipline anyone. Although you may end up paying higher interest in the long run, the banks will decrease your EMI amount, keeping your monthly expenses in mind. Use Andromeda home loan calculator to check the monthly installment you have to pay, evaluate your expenses, and proceed with the loan application documents.
- Home loans are the best way to avail of tax deductions
One of the most hazardous home loan myths is that buying multiple properties will help you get tons of tax deductions. Although you can avail of tax deductions, up to almost 2 lakh rupees per annum, on two home loans, you must have sufficient income and assets to pay the monthly installments.
- Applicant’s employment status does not matter for home loans
Another baseless home loan myth that has been floating around for quite a few years is that your employment status does not matter when applying for home loans. It is entirely untrue, for your ability to pay back the loan amount is the most crucial factor when taking home loans. Therefore, if your income-to-debt ratio is off, you won’t be given a home loan.
- Borrowers do not have to pay property insurance
Homeowners are always responsible for protecting their property against natural elements and disasters. Another untrue home loan myth is that you do not have to worry about property insurance when you are repaying the loan amount. Make sure to check your loan sanction documents carefully, for many banks and NBFCs attach property insurance along with the loan amount, so you will end up paying back a lot more than what you borrowed.
- Low-interest loans are the best
It is a typical home loan myth that low-interest rates are better than high-interest rates. Make sure to check the fine print for additional charges like prepayment penalties and legal valuation charges that may increase the total loan amount much higher than what you perceived it to be. Always consult your lender before getting a home loan. They will help you to compare options and choose the best loan product suited to your needs.
- Fixed home loan rates are easier to pay back than floating home loan rates
You should not be fixated on only the rate of interest when choosing home loans. Fixed home loan rates are always applicable for a specific tenure within the entire loan repayment period. The rest of the period will be subjected to money market clauses and the economy. This rarely happens, but if the interest rate were to drop during the fixed interest period, you would not be able to avail of that reduction.
- RBI decides the home loan interest rates
Unlike popular sayings, RBI does not decide every home loan interest rate. Although the central bank decides the key bank deposits and lending rates, individual banks and NBFCs offer their interest rates, based on their scheme and tenure. It is due to the multiple interest rates that borrowers can choose from a wide variety of home loans.
- Home loans must be repaid as soon as possible
One of the most frequent home loan queries that most individuals have is whether they would be charged prepayment penalties. It depends on your home loan fine print. Some lending institutions implement pre-payment charges during the first three to five years of your tenure. So, if you want to repay the loan with your savings, most banks allow 25% of the outstanding loan amount to be paid in one financial year.
- A high credit score is the only eligibility criterion for home loans
Your income-to-debt ratio and income are the two most important criteria to avail of home loans. An excellent credit history and a high CIBIL score show that you have a history of paying back debts. However, lending institutions will assess your current income and assets before giving you a home loan.
- Home loan prepayments lead you to lose benefits
Section 24 of the Income Tax Act states that one can receive tax exemptions from home loans. However, if you repay most of the loan amount with your savings, you will benefit from tax benefits. Some banks charge prepayment penalties, so you may end up paying more than the amount you borrowed. And, it is easier to pay the amount in small chunks monthly so as not to put a dent in your long-term savings.
Home loan FAQs
Q. Do I get tax benefits if I apply for home loans?
A. Section 24 of the Income Tax Act states that you can receive tax exemptions from home loans. The upper limit for tax deductions is INR 2 lakhs per annum. Also, you can save INR 1.5 lakh rupees exemption from the principal money under Section 80.
Q. Who can avail of home loans?
A. If you have sufficient income to pay for the monthly installments and an excellent credit score, you can apply for home loans. However, lending institutions will check your background, debt-to-income ratio, and other factors before sanctioning your loan.