Owning a home is the ultimate goal for almost everyone. Home loans come as a relief for those who want to purchase their dream homes but cannot do it off-pocket. Taking a home loan is a long-term decision with implications, and it requires adequate planning. However, there are still a couple of misconceptions about home loans.
And this is probably because the information available about this loan variant is confusing. We’ve highlighted four of the most common misconceptions surrounding home loan processes.
A Loan with Lowest Interest Rate is the Best Option
The first misconception among many borrowers is that home loans offering the lowest rates are the best deal. Although it’s assumed to be, this isn’t a guarantee in many cases. Of course, interest is a critical consideration, but it is not the only parameter that influences the total loan value. You need to check other charges like legal fees, processing expenses, and even the possibility of hidden costs.
Additionally, you must consider a standard post-loan booking service to see if it aligns with your loan terms. Keep in mind that home loans often run over extended periods, increasing the possibility of getting high service.
You Should Never Refinance a Home Loan
Depending on your situation, home loan refinancing can help you progress or send you into the world of financial confusion. Although many misconceptions have surrounded home loan refinancing, the reality is that you can make an informed decision by gathering adequate information from the market. Moving to another lender is a significant decision that requires thorough research and careful planning.
Most borrowers refinance their loans to increase loan terms, utilize lower interest rates and more. However, before deciding to refinance your home loan, ensure the difference between funds saved by refinancing your loan and that spent on the process is positive. Otherwise, your refinancing may not make much financial sense to you.
Fixed Interest Rates are Always Better
Lenders provide multiple options for borrowers – you can choose adjustable-rate or fixed interest rates. In most cases, borrowers assume fixed rates offer the best deal. This is a misconception that has been attacked by this variant, which tends to confuse borrowers. The reality is that the type of interest rate you choose depends on your preferences and the current economic situation.
Adjustable interest rates are dependent on a repo, statutory liquidity ratio, and other market factors. On the other hand, fixed interest rates don’t depend on these factors. Meaning, if market interest happens to fall, people with adjustable rates will pay lower rates, while borrowers with fixed options will maintain their original payments.
You Need to Pay Off All Your Other Debts Before You Can Apply for a Home Loan
Another common home loan misconception is that you cannot take a loan with outstanding debts. Although it makes financial sense to discharge outstanding debts before taking on another, you can still take a home loan as long as you meet the minimum threshold. In most cases, your debt doesn’t necessarily affect your loan application, but it will impact the amount of money the lender is willing to offer.
Lenders will assess you on various aspects to determine if you’re eligible and if they think you qualify for the loan, they’ll be willing to lend. You’ll even be able to roll all your outstanding debts into a single loan.
Misconceptions around home loans can lead to the spread of inaccurate information, causing discomfort among borrowers. If you’re a first-time homeowner, make sure you seek correct information from reliable sources to help you make an informed decision. The four misconceptions mentioned above are just a few. Read them to know the truth about home loans.