3 Easy Banking Terms That Are Complicated In Nature
You did not think it right to enter the territory of the financial world unarmed. Before applying for your home loan, you did your research. Thus, your home loan application was approved in no time. It has been two years now since you bought your home, but in the hindsight, you have realised that there were certain loopholes in your study. Had you been a bit more careful, things would be better today.
In their nervousness, home buyers can go wrong at several points when applying for a home loan. And a slip is more likely at places where you least expect it.
Let's begin with the loan tenure. The bank gave you an option to choose between a 20-year and a 30-year term. The logic is simple, you thought. The shorter the period, the higher the monthly EMI (equated monthly instalment) payment. So you opted for the 30-year tenure. You might have considered at that time that 30 years is a very long period. Your priorities are going to change by that time. Now, owning a home seems like an urgent need; three decades later financing your children's weddings would be your key concern. So, do you want to keep yourself tied to an obligation till then? In case your finances allow, going for a shorter tenure will be a wise proposition. It will give you financial and emotional freedom much earlier.
Word to the wise: A home loan is a personal obligation. Take a long, hard look at your present and future prospects before you sign on the dotted line.
Another very commonly used and utterly complicated term is interest rate. Because you are not well-versed with the complicated movements of the market, you chose to go for a fixed rate of interest on your home loan. Even if you paid more than those who go for a floating rate and put to use their knowledge of the market movements, you were going to be sure of the amount you had to pay to the bank every month, you thought. Being sure seemed to be your priority. Fair enough. Now, did you know that banks might have inserted a clause in the loan agreement that says they have the right to revise the rate after a certain point even if you have applied for a loan on a fixed rate of interest? This fails the whole purpose of going for a fixed rate.
Word to the wise: Why not learn the tricks of the market movements? You learn something new and you can save money, too. In fact, you can start making money after a point by investing in, say, stocks.
Now, we come to another term that is highly confusing. Your bank said you are not eligible for the loan amount you have applied for. But, if you have your spouse as the co-borrower in your loan application, the bank would sanction the said amount. You convince your working wife to become a co-borrower and she gives her approval on one condition. She will not be making any financial contributions; the deal will work only on paper. This seems feasible to you at that moment. Now, let's assume for a moment something unfortunate happens to you in future. In a scenario like this, the bank will hold your wife responsible for making the EMI payments. To meet your short-term goals, you might be exposing yourself to certain risks in future.
Word to the wise: Do keep in mind that simply by being a co-borrower, you do not become the co-owner of the property. Being a co-borrower also restricts your options in case you want to apply for another loan in future.