Myth 1: Interest rate hikes will lead to higher EMIs
Most borrowers are in the belief that with the rise in interest rates, they will be forced to pay out higher EMIs. This is not true. That is just one such option, where you can increase your loan tenor keeping the EMI at the same amount.
Banks also give the option to pre pay a part of your loan so that a part of your prepayment burden is considerably reduced. After which, you can continue paying the same amount on your EMIs.
Another option will be to increase the EMI amounts if, the borrower is not in a position to repay a part of the loan due to lack of possession of assets. In such situations the borrower can opt for this approach.
Myth 2: Prepayment always attracts penalty
It is not applicable in all situations. Obviously, as the terms and conditions vary from bank to bank, the penalties may differ. Most banks do not charge a prepayment penalty on your home loan if you are in the 3rd or 4th year of prepayment. Some banks do not charge penalties if the borrower is willing to prepay 25% of the outstanding loan amount, but will charge anything from 2% to 4% for any amounts paid over the specified limit of 25%.
Myth 3: Loan with lowest interest rates is best deals
There are a lot of things that a borrower needs to keep in mind if you want to opt for a home loan with lowest interest rates. More often, it has been observed that, although the banks, may genuinely be providing lower rates of interest but it is the procedural charges like the processing fee, inspection and valuation charges, etc that will equate to the same amount of the actual interest rates that other banks offer.
Myth 4: Banks are not concerned about the employment status
Banks are very interested in knowing your employment status and everything that deals with it.”The home loan agreement stipulates that the borrower should keep the bank informed about change in employment, job loss, retirement, etc, within seven days,” says VN Kulkarni, chief counselor, Abhay Credit Counseling Centre.
Most home loan clauses state that:
The relevant, although rarely used, clause states: “Upon the borrower opting for retirement or ceasing to be in employment for any reason, then, notwithstanding anything to the contrary contained in this agreement or writings or any documents, the entire amounts payable under the said loan shall, at the bank’s option, become forthwith due and payable by the borrower from the amount/s receivable by him from the employer.
Myth 5: Property Insurance is not borrower’s responsibility
This clause is generally over looked by people in their home loan agreements, which say that, a mortgaged house should be insured against fire and other natural calamities. The clause further adds that, if the borrower shall make any default in insuring and keeping insured the said property, the bank may without prejudice to its rights and without being bound to do so, insure and keep the same insured by debiting the loan account of the borrower. Such amounts shall also carry interest at the rate aforesaid.