If buying a residential property is a dream, securing financing to help you buy the flat or apartment is the first step to realising it. Unfortunately, most young professionals and first-time home buyers are wary of opting for a home loan.
So here is our attempt at busting some of the top property loan myths we at Blox come across.
1. Shorter loan tenures are better - Most of us like the idea of living debt free. This prompts us to opt for shorter tenors. What is important here is the ability to repay the EMI without going through financial stress each month. Paying off your home loan quickly may be a source of pride and satisfaction but it is not necessarily a financially prudent decision. An active home loan helps us avail of tax deductions on the principal and interest repayment in accordance with the IT Act. This must be considered when selecting the loan tenure. A shorter tenure may not always be financially advantageous.
2. Prepayment attracts hefty charges – Now that we have learnt that an active home loan helps us gain tax relief, we may be reluctant to close a loan early when we have an infusion of funds. Add to this the fact that, many of us are reluctant to repay a property loan or housing loan early for fear that an early repayment or prepayment can attract a hefty charge. In some cases, this is true. For example, when a person opts for a fixed interest rate to prevent an increase in EMI, a prepayment may attract a charge. But if you have a floating interest on your loan product, most lenders allow you to pay and close the loan without any penalty. Check the terms of your loan product before deciding to repay early. It is always a good idea to talk to a financial advisor and pick the option best suited to your individual situation.
3. If I have a good income, I can get easy approval – Most lenders, like banks and NBFCs, look at the loan applicant’s ability to repay. This naturally includes a summary of your earnings, salary slip, assets, and investments. What is more important, though, is your credit score. It is a reflection of your financial hygiene. It shows if you are prompt in repaying loans if you have multiple loan products, if you have had a history of defaults etc. The higher your credit score, the easier it is for you to get loan approval.
4. Home loans have high-interest rates – This is a myth. Before opting for a home loan, you must compare various products offered by banks and NBFCs. Irrespective of the type of interest you want, fixed or floating, most home loans have lower rates of interest than other types of loans, such as personal loans. This is why most homebuyers prefer to take a top-up after a few years rather than opt for an additional personal loan in case of a need for funding.
5. I should not buy a property when the interest rates are high – This is one of the commonest property loan myths. When banks and NBFCs hike interest loans, buyers are often dissuaded from buying properties. They wait for interest rates to come down. The intelligent investor, however, understands that with smart research and good negotiation, the best time to buy real estate is when the demand is typically low. This is when the developer is inclined to offer discounts on the property's price, driving down the cost.
6. I can only take a loan against residential property – Banks and NBFCs offer loans to buy residential and commercial properties. The terms are very often the same. It is a good idea to talk to your bank or lender to understand how you can take a loan and buy commercial property. It is often a good idea to weigh the pros and cons of investing in residential and commercial properties. Include any tax that you may incur from rental income and the applicable GST before you make a choice.
7. I own the property when I return the loan – Paying off a home loan is a wonderful achievement. Your ownership is not secure till you get an acknowledgement from the bank or NBFC and get a NOC that clears you off your dues and establishes your ownership. This NOC is very important if you plan to gift, will, or resell your property. It is a good idea to be proactive and approach the bank for an NOC after you have paid off your loan.
Apart from helping you find a RERA-verified property from verified developers in the Mumbai suburb of your choice, the Blox relationship manager will also help you understand the home loan process and get the necessary documents in order. You may want to compare various home loan products from leading banks and NBFCs before you apply.
