Home loans are long-term financial commitments. You should have complete clarity about the product before you enter the world of housing finance.
With the help of housing finance, you can own a property quite early in your life. However, there are several myths associated with home loans in India. Anyone planning to take a home loan to buy a property, should have clarity on various aspects before visiting a bank with ill-founded expectations and facing rejection of the home loan application.
Myth 1: Bank will provide 100% loan
Under the rules prescribed for the banking sector, no bank in India can provide 100% of the property value as home loan. In the best case, a bank can lend you up to 90% of the property amount. However, you have to follow various terms and conditions for that to happen.
Myth 2: The bank offering the lowest interest rate is the best
As money plays an important factor while buying a house, an inexperienced borrower may opt for a bank offering the lowest interest rate on home loans at any given time. Unfortunately, home loans interest rates keep changing, along with a bunch of other associated charges. Rather than getting swayed by the current interest rate, researching past records would help you find how swift the bank was, in passing rate cut benefits.
Myth 3: I will definitely get a home loan if I earn well
This is true only if you also have some upfront money saved to show. Moreover, banks now give a great deal of weightage to your credit score while processing home loan requests. Your loan application would be rejected, irrespective of your impressive salary package, if your credit score is poor.
Myth 4: Co-borrowing is always good
Banks invariably urge home loan applicants to co-apply with their spouses. The obvious explanation they provide is that it increases your borrowing capacity. What they do not tell you is that they are basically looking for a person who will be able to repay the loan, in case something unfortunate happens to the main applicant. Co-borrowing could be good but you should choose it only after knowing every aspect of this arrangement.
Myth 5: I should borrow as much as I can
Just because home finance is readily available, it does not mean one should borrow as much as one can. Each rupee you borrow has to be paid back, along with interest on it, over a long period. Ideally, one should keep the home loan amount as less as possible.
Myth 6: The bank will inform me about rate cuts/hikes
Unfortunately, this is never the case. You will have to keep a track about how the RBI is changing its repo rate and how your bank is responding to the rate hike/cut.
Myth 7: I will get the benefit of rate cut by the RBI immediately
Even though all new floating rate home loans in India are linked with the RBI’s repo rate, banks are not as swift in implementing the rate cuts as they should be. However, any hike in the repo rate would make a quick impact on your home loan EMIs.
Myth 8: You cannot negotiate on rates
Like all products open for sale, there is always a scope for negotiations and the same applies to home loans too. Depending on your communication skills and how persuasive you are, you can get the bank to offer you a good home loan product.
Myth 9: All lenders are more or less the same
Although they are all in the business of lending, all banks are not the same as housing finance companies (HFCs) or non-banking finance companies (NBFCs). Banks in India are directly governed by the RBI. HFCs and NBFCs have come under the purview of the apex bank only some time back. Banks, HFCs and NBFCs operate differently, because of the basic difference among their structures. So, make sure you know the difference before you choose your lender.