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Don’t Fall for These Misconceptions About Home Loans

Buying a house is a huge financial decision. While some people manage it through home loan finance, it still remains a distant dream for many. There’s no denying that taking a home loan can be financially binding. Opting for a housing loan is likely to tie up your finances for the next few years. But it will all be worth it in the end. And you‘ll finally have a dream home in your possession!

Once you’ve decided to go down that road, thus begins the home loan application process. There are some popular misconceptions associated with taking home loans in India. Here in this article, we look to do away with them.

The Common Misconceptions about Home loans in India are:

Fixed Rate of Interest is better than a Floating Interest Rate

If you don’t want to risk a fluctuating interest rate (one that increases or decreases over time), opt for a fixed one. However, nowadays, banks don’t offer the ‘fully fixed’ option when it comes to Home loan rate of interest. It usually comes in hybrid form wherein the interest rate is fixed for the first few years and then changes at the bank’s discretion.

Rise in interest rates will Always result in increase of EM

It isn’t always necessary that an increase in interest rate will result in an increase in EMI. Most banks will not increase your EMI without your consent. When the market rate changes, the bank lends you a choice. You can either extend your loan tenure or increase your EMI. The choice is yours!

Smaller Tenure with Higher EMI is better

Don’t go by this! Ideally, choose an EMI/tenure combination that permits comfortable repayment of your home loan.

Avoid Refinancing the Loan

This is probably the biggest misconception most people have – but the fact of the matter is that you are free to change your lending institution at any time if another one offers you a better rate of interest.

Lower Interest Rate is always better

An institution offering a low rate of interest may not necessarily offer the full home loan amount. And sometimes, they may include exorbitant fees upfront.

There are Hefty Pre-Payment/Foreclosure Charges

Since June 2012, there are no loan pre-payment charges in India.

Now that we’ve cleared these misconceptions, and you’ve decided to take the plunge, the first step is to manage your EMIs (Equated monthly instalments) efficiently. Here are some of the ways in which you can manage your home loans without hampering your household finances:

Pay a Higher EMI if Possible

One of the best ways to repay your loan before tenure is to pay a higher EMI. By doing so, you can reduce the number of months or years from your stipulated loan period and save on Home loan interest rates for the same.

Do Not Delay or Miss Monthly Payments

Not only does this adversely affect your credit score but you end up paying more in the long run – courtesy late payment fees and added interest. It would be advisable to first plan your finances properly and then apply for a loan accordingly.

Try to Pay the Loan beforehand

Partial pre-payment is a faster way for you to lower your loan tenure. Also, it has its own benefits, as most banks do not charge any fee for it. So, the next time you receive a bonus or enjoy a big gain from stocks and shares, use it as partial pre-payment of your home loan.

With all these tips on home loan finance, you can avail the benefits of an easy home loan.

To apply for home loan, visit Capital First today.


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