In an ever-evolving financial landscape, misconceptions about home loans can deter potential homeowners from making informed decisions. To shed light on this issue, we sat down with Rishu Garg, the CEO of Credit Dharma, to debunk five prevalent myths surrounding home loans.
Myth 1: You Need a Perfect Credit Score to Get a Home Loan
“Many people believe that only those with impeccable credit scores can secure a home loan,” says Garg. “While a strong credit score certainly helps in obtaining better interest rates, lenders consider a multitude of factors.”
He explains that banks assess income stability, employment history, and existing financial obligations alongside credit scores. “Even if your credit score isn’t perfect, you can still obtain a loan, especially if you have a co-applicant or can provide collateral,” Garg adds.
Myth 2: A Shorter Tenure Is Always Better
The common assumption is that shorter loan tenures save money by reducing total interest paid. Garg advises caution: “While it’s true that shorter tenures decrease the amount of interest over the life of the loan, they also lead to higher monthly payments.”
He emphasises the importance of aligning the loan tenure with one’s financial capabilities. “It’s crucial to choose a repayment period that doesn’t strain your monthly budget,” Garg notes. “Financial stability should always take precedence over hastening loan repayment.”
Myth 3: You Cannot Prepay or Foreclose a Home Loan Without Penalties
Borrowers often think they’re locked into their loan terms without flexibility. In reality, many banks allow for prepayment or foreclosure with minimal or even no penalties.
He points out that a good credit score and solid repayment history can provide leverage when negotiating these terms. “Always review your loan agreement carefully and don’t hesitate to discuss prepayment options with your lender,” Garg advises.
Myth 4: You Must Have a Fixed Income to Apply for a Home Loan
Addressing the concerns of freelancers and commission-based professionals, Garg states, “A fixed income isn’t a mandatory requirement. Lenders are interested in consistent earnings and overall financial stability.”
Variable income earners can strengthen their applications by providing evidence of steady income over time. Documentation and transparency are key. Demonstrate your ability to meet repayment obligations, and lenders will consider your application seriously.
Myth 5: Fixed Rates Are Always Better Than Floating Rates
Many believe that fixed interest rates are the safer bet. The stability of knowing your exact monthly payment can be appealing, but fixed rates are usually higher than floating rates.
Floating rates fluctuate with market conditions, which can sometimes work in the borrower’s favour. “If market interest rates decline, so will your loan’s interest rate,” Garg explains. “It’s important to assess your risk tolerance and market forecasts before deciding.”
Credit Dharma’s Unwavering Dedication to Fostering Transparency and Educating Customers
Credit Dharma’s commitment to transparency is evident in their service model. They aim to educate every aspiring home buyer and provide authentic advice, ensuring clarity throughout the entire process. This educational approach is reinforced through webinars and informative sessions designed to bridge the knowledge gap prevalent in the market.
With a clear understanding of the realities behind home loans, navigating the path to homeownership becomes not just manageable but truly empowering.
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