Every day Nupur meets a few home loan applicants. And she finds one thing absolutely interesting.
Nupur Chatterjee works in the home loans division of a prominent bank in Kolkata. Her job is to help prospective customers by informing and educating them about home loans.
During the course of her daily interactions, she regularly comes across one interesting fact.
A majority of people who meet her to know more about home loans have several misconceptions.
The other day, one gentleman was mighty offended when she asked for some financial details.
”My CIBIL score is in the highest category. Why does the bank need more financial information from me?” He was quite perplexed.
Many people think the CIBIL score is the only parameter banks consider before sanctioning home loans and they need not ask for more information.
There are more misconceptions about home loans than you can even imagine.
However, you must have a clear understanding of home loans or you may have unreasonable expectations and be disappointed.
Let’s discuss some of the common home loan myths which are not true at all.
Are you with me on this?
Let’s dive deep together.
Approval, Sanction, and Disbursement of Home Loans
When you apply for a home loan, your application is reviewed and approved for further processing. Approval of the loan application does not imply sanction.
Banks conduct a detailed check of all relevant information before issuing the sanction letter. From existing residential address to CIBIL score, complete information is thoroughly checked. Once the bank has validated all the details, it issues the sanction letter with the loan amount, and all the terms and conditions are clearly stated therein.
Finally, the bank disburses the loan amount as per the terms mentioned in the sanction letter. Disbursement can take place in one or more installments.
Should You Go for the Lowest Rate Home Loan?
Contrary to popular belief, a home loan with the lowest rate may not be the best option,
because what you perceive is not always true. If a home loan offers a low rate of interest but charges like legal valuation fee, the penalty for prepayment, etc. are associated, you might just end up paying a lot more for an apparently cheaper home loan.
Read the fine print carefully and ensure that there are no hidden charges on your housing loan.
Are All Lenders Same, More or Less?
Actually, no.
Apart from banks, there are housing finance companies that work somewhat differently. Service quality, certain charges differ from one lender to another.
Do the Banks Worry about Employment Status? Or Only a High CIBIL Score?
There is a common misconception that the banks do not bother about the borrower’s employment status. The only consideration is the CIBIL score.
The reality is far from it.
CIBIL score is one of the factors which banks check before sanctioning a home loan. However, banks are very serious about the borrower’s capacity to repay the loan. And it is only possible when the borrower has substantial regular income. Banks accord immense importance to a borrower’s employment status, and even a high salary but a poor CIBIL score can be a reason for declining the loan application.
Do the Banks Tell Customers about Rate Cuts?
In reality, this never happens. Banks do not inform home loan customers about rate cuts.
It’s the responsibility of the borrower to keep track of repo rate movement, and his bank’s response to it.
Rate Cuts Apply Immediately — Do They?
Unfortunately, RBI policy rate cuts do not apply immediately to home loans if interest rates are reduced. Home loan EMIs or tenures do not change rapidly.
However, in the case of RBI hiking policy rates, banks lose no time to apply it to existing and new home loans.
High Interest Means High EMI — Right?
No, it’s not so simple.
Banks sanction loan amounts and tenures in such a way that the borrower doesn’t feel a painful pinch while paying the EMI.
Even in the case of a home loan while interest rates are elevated, the EMI must not be too high to derail your monthly household budget. Banks are aware of this and take every possible step so that the borrower can avoid any such stress.
Moreover, the interest rate levied by the lender also depends on other factors like the age of the borrower, the income of the applicant, etc. If you apply for a home loan at a young age and have a good income, the interest rate will be brought down for you by the lender. So, you will not have to worry about high EMIs anymore.
Should You Always Have a Co-borrower?
Banks generally insist that any borrower must add his/her spouse as a co-borrower.
The advantage of having a co-borrower is that the loan amount can be considerably higher than that is sanctioned to a single borrower.
However, you must remember that a co-borrower has similar liabilities as the borrower to repay the loan. In any unfortunate event when the main borrower is not able to repay the loan, it is the co-borrower’s responsibility to pay the bank.
It’s not that having a co-borrower is bad but you should weigh all the pros and cons before taking the decision.
You Need Not Bother about Home Loan Insurance
Wrong again!
It is wise to insure your home to get compensation against any damage to your home and its contents because any disaster.
More importantly, the borrower should buy home loan insurance. Especially, if he has a co-borrower, the responsibility to pay the loan falls on him/her.
A home loan insurance will make sure that home loan liability will be paid by the borrowers without any problem even in such a situation when the main borrower is unable to pay due to any unfortunate event.
Does Pre-payment Always Attract Penalties?
There is a common idea that full or partial pre-payment of a home loan always attracts penalties. However, this is not entirely true these days.
These days, most lenders do not charge for pre-payment although some may. It depends on the policy of the lender.
Most lenders waive off the pre-payment penalty unless you opt for a home loan refinance from a different financial institution.
Buy Your Dream Home Now
You must take an informed decision about home loans so that you don’t overpay or accept any inconvenient terms.
You need a professional, knowledgeable guide to help you along the way.
We have a homebuyer’s service centre at NK Realtors and you will receive the best of informed, experienced guidance all along your home-buying journey.
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