HOME LOANS – MYTHS VS FACTS

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In today’s time, buying a home is an expensive affair. From application fees to document charges, multiple costs are incurred when applying for around the entire process.

At Shubham Housing Finance, we believe that buying a home means the ability to make your aspirations a reality. Keeping this in mind, we’ve busted some myths about taking a home loan.


Myth 1: You should take a home loan that has a low-interest rate


At first, taking a home loan at a lower interest rate may seem like the best option. You may take a look at the home loan rate of your financial institution. However, purchasing a home involves other costs. For example, you need to consider fees like the application fee, processing fee, administrative fee, technical valuation charges, etc.

Fact: The rate of interest that you will be charged will depend upon factors like your credit score and your history of repaying loans on time. Hence, simply taking a look at the home loan rate of your financial institution is not a good idea.


Myth 2: A good Credit Score is the only important thing to getting a Home Loan


Fact: You may wonder why your credit score is important when you are applying for a home loan. A high credit score implies that an individual is and is a part of the home loan eligibility criteria. Individuals with a high credit score can increase their chances of obtaining a home loan easily. Usually, a score of 700 and above is considered good. The score is represented as a three-digit number.

Do You Know Shubham Housing Finance does more than just look at your credit score when considering a loan? There are several factors to consider, including your repayment history, the ability to pay back the loan, your bill dues, and so on. Contact one of our representatives for further information.

You can talk about that how we don’t consider credit score only when evaluating a loan. And if they don’t have a score as this may be the first time they are taking any credit, we will consider that as well.


Myth 3: People earning in cash do not get a loan from a registered NBFC or banks


Fact: Your income type is an important consideration before any company decides to offer a loan to you. After all, it is a crucial part of the home loan eligibility criteria. There is a misconception that only the local lenders will be lending you money if you are earning in cash. In fact, there are many registered NBFCs like Shubham Housing Finance that are more than willing to grant loans to people with informal incomes or those earning in cash. You must showcase that you have a source of income to help you repay the loan on time. (Both parties need to have trust in each other!)


Myth 4: A home loan authenticates your property


Fact: A home loan is a mechanism to purchase your dream home. It does not authenticate or give a title to your property. Home authentication and home loans are two different concepts that must not be confused with each other.


Myth 5: Penalties are charged for home loan pre-closure


Fact: Many borrowers are afraid that they will be charged a penalty for the pre-closure of a home loan. The Reserve Bank of India (RBI) has banned banks and housing finance companies from charging penalties for foreclosure of a home loan. (Only on home loans with a floating rate of interest). In fact, if you repay a loan before the due date, it can help you stay at ease knowing that you have repaid your debts.


Myth 6: A fixed interest is better than a floating interest rate


One common misconception that buyers have when applying for a home loan is that a fixed rate of interest is better than a home loan with a floating rate of interest.

Before busting this myth, let’s understand the difference between a fixed rate of interest and a floating interest rate.


Floating rate of interest: Usually, the floating rate of interest on a loan changes on a quarterly basis in line with several factors that affect the bank interest rates.

Fixed-rate of interest: This interest rate remains the same throughout the tenure of the loan.


Fact: The floating interest rate is better than a fixed interest rate. The fixed rate of interest turns out to be more expensive in the long run than the floating rate of interest. Given that Home Loan tenures are so long, interest rates tend to change and the benefit is passed on to the customer by the Home Loan provider.


Myth 7: One should opt for short term loans


Fact: Many borrowers have the misconception in their mind that short-term home loans are better than long-term home loans. This is not the case as a high EMI (equated monthly installments) can increase costs for the borrower. In such cases, a borrower must opt for either a medium or a long-term loan.

What is EMI?


EMI or equated monthly installments are the fixed payments that a loan borrower has to make on a specific day every month.


Myth 8: Your house is owned by the home loan company


Fact: Your house will always be your own property and banks’ interest is only in that you fully repay your loan. The registered banks and NBFCs/HFCs such as Shubham Housing Finance guarantee that you only have possession of your home. You are free to decorate, renovate and furnish your home the way you want. The only thing you will not be able to do is to sell it without the bank’s or HFC’s permission as long as your loan is running. Local lenders have transactional relationships, and your welfare might not be in consideration but registered banks/HFCs focus on developing a relationship with their clients. They recognize the fact that they are with you for approximately 20-30 years, and hence understand the importance of helping people find their dream homes.


Myth 9: Home Loan Providers never work for your interests


Fact: Home Loan Providers are always concerned for your welfare and their primary interest is in assisting you so you are able to service your loan. A home loan provider is your best source for a loan. They are more concerned with giving you the money you need rather than how much they will get out of it. They try to ensure that you obtain the best loan possible so that you may live in your dream home.


A registered bank/HFC guarantees that your family will not be in debt in the event of an emergency, and it protects you from the unpredictability of life. They assist you in reaching your financial objectives by providing life insurance coverage and property insurance for your debts.


To Sum It Up…


The knowledge of the above myths will help you save time, and effort and eliminate risks when applying for a home loan. Are you ready to start planning to buy the home you want for yourself and your family members? To know more about the loans that Shubham Finance offers, head over to this page.