Home Loans Demystified

HomeLoans Demystified

Home loans are one of the necessary financial steps we must take in order to purchase our own abode. However, there are many myths and rumours surrounding the process, many of which tend to scare away the more uninformed. While the entire process of a loan is not one to take lightly, it is not something that needs to be feared by the customer. We have taken on a few of the most common myths surrounding home loans and set the record straight:

  1. Higher interest rate means a higher monthly EMI:
    One of the most common thoughts surrounding the repayment of home loans is that a higher rate of interest will result in a higher EMI. A fluctuation in the interest rate would also result in the same, causing one’s financial planning to undergo massive turbulence. The actuality is that the bank would keep the EMI the same and simply increase the tenure of the loan. The borrower can also opt to not extend the tenure of the loan if he or she so wishes.
  2. Fixed rates are better than floating rates:
    Floating rates depend on the condition of the market and change depending on many different factors such as repo rate, reverse repo rate, cash reserve ratio, etc. When the teaser rate was formed, the fixed rate was much lower than the floating rate, but right now the opposite is occurring with the floating rate being lesser than the fixed rate. However, deciding on one or the other is completely dependent on the financial health of the customer and what they feel comfortable with.
  3. Home loans need not be refinanced:
    While refinancing is not a mandatory step, it can help with your repayment greatly. It would mean a lower EMI amount and shorter loan tenure. The downside is that it requires an upfront payment, something many people are not able to provide. This is another practice which depends on the financial condition of the customer and whether or not they feel they would be able to take on the refinancing situation.
  4. Banks charge a heavy penalty on Prepayment/ Foreclosure:
    This is a major worry for most people who have taken a home loan. They might be able to repay the loan well in advance but are worried about the charges they will face for a foreclosure. The RBI has prevented banks from applying a penalty to any loan amount which was on a floating rate of interest. This means that you would be able to close your loan tenure with little to no worry about a fine.

A loan is a big step to take and one should go through the contract thoroughly, making sure that they keep the fine print in mind. When properly informed, a home loan is very easy to tackle and repay.

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