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Busting Home Loan Myths to Smoothen Your Home-Buying Journey

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Obtaining a home loan is a significant financial decision, and it's essential to thoroughly understand its implications.  Misconceptions about home loans can potentially lead to missed opportunities or increased financial burdens. Let us debunk common home loan misconceptions and provide you with accurate information to make informed choices.

Myth 1: Fixed Rate Home Loans are Always Beneficial

One prevalent myth is that fixed-rate home loans are the best option. While fixed-rate loans offer a constant interest rate stability throughout the loan tenure, they typically come with a higher initial interest rate than floating-rate loans.

Fact

Floating-rate home loans, which fluctuate with market conditions, can offer lower interest rates over the long term. In recent years, these rates have often remained below 10%, making them more cost-effective than fixed-rate loans, which can range from 10% to 12%. The choice between fixed and floating rates should consider your financial goals and risk tolerance.

Myth 2: Home Loan EMIs Change With Floating Interest Rates

Some believe that the equated monthly instalments (EMIs) of a floating-rate home loan change with fluctuations in the interest rate.

Fact

While the EMI amount remains consistent for floating-rate home loans, the distribution between the interest and principal components changes with interest rate fluctuations. When rates rise, more of the EMI goes toward interest; when rates fall, a more significant portion goes towards the principal. The EMI amount only changes if you opt for a balance transfer or make a partial prepayment.

Myth 3: Tax Benefits Apply Only to Ready-to-Move Properties

A common misconception is that income tax benefits are only applicable to ready-to-move properties and not under-construction units.

Fact

Tax benefits are available for under-construction properties as well. You can claim deductions on the pre-construction interest in five equal instalments after taking possession of the property. This provides tax benefits similar to those for ready-to-move properties.

Myth 4: Home Loan Prepayment Involves Charges

Many borrowers believe that prepaying a home loan attracts charges.

Fact

Prepaying a floating-rate home loan typically does not incur charges. However, some lenders may impose prepayment charges if the prepayment is made through a balance transfer. Therefore, it's essential to read the terms and conditions of your loan agreement.

The Final Words

In the journey of securing a home loan, understanding the facts and the myths is crucial. Initially, you must evaluate your current income, age, life cycle, responsibilities and aspirations. Select a property that suits all your needs and then shortlist the possible home loan options. We've addressed common misconceptions to reveal the truths every potential homebuyer should know. From the advantages of floating-rate loans to the availability of tax benefits for under-construction properties, knowing these facts empowers you to make well-informed decisions.


Frequently Asked Questions

Are there any disadvantages to fixed-rate home loans?

Ans: Fixed-rate home loans often have higher initial interest rates than floating-rate loans. If market interest rates decrease, you may end up paying more in interest over the long term.

Can I switch from a fixed-rate home loan to a floating-rate loan or vice versa?

Ans: You can switch between fixed and floating-rate home loans, which may involve paperwork and discussions with your lender and opt for an alteration in your existing arrangement. Discussing the options with your lender and other home loan providers is essential to settle for what works best for you.

 

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