5 Myths About Mortgages
Your home is one of your biggest investments. House hunting is an exciting experience for many homebuyers, but this is not true of taking a home loan.
If the idea of buying a house both scares and excites you, then that is how it should be. If you think that the process of buying a mortgage is a cakewalk, then you are ill informed.
You should not believe what everyone says about the mortgage processes. You must study the home loan market yourself to see through popular mortgage myths.
MakaaniQ lists some of the myths/misconceptions about mortgages so that you can take a wise mortgage decision.
Myth 1: Your credit score must be perfect or near perfect
If you think that people with credit scores below 600 will not get a home or mortgage loans, you are wrong. You just need some supporting documents that prove that you are a credit worthy home/mortgage loan applicant. Some of the compensating factors are a huge down payment (also known as Margin Money), Low Debt-to-Income ratios and good and valid sources of income.
Even if your credit report has some flaws and financial scrape ups, if you have paid your bills and earn a steady income for the large part, you need not worry much.
Myth 2: You will get a loan only if you a make down payment of exact 20 per cent of the purchase price
Many home loan borrowers believe that they need at least 20 per cent of the market value of the property at their disposal to get a home loan. This is a myth. Many lenders in the market offer home loan products that do not require 20 per cent 'Margin Money'. Another way of buying a home loan if your contribution is less than 20 per cent is by choosing a home loan insurance product. If there are cash flow concerns, you can go for a Construction Linked Plan (CLP) home loan where the margin money is contributed at different stages of construction. This prevents lump sum pooling of all margin money at the initial/ first stage of construction.
Myth 3: Interest rate reflects the true financial cost of your mortgage
If you think that the interest rate is the only factor that matters while shortlisting your home loan lender, think again. Various lenders impose some additional costs on you. You should consider them while applying for a home loan. Some of these charges will not be refunded even if your home loan application is rejected. Some of these charges are processing fee (PF), Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI), Conversion Fee, late payment charges, conversion fee, pre-payment charges etc. All these add to the cost of your credit.
Myth 4: Mortgages are the same at every bank
Mortgages are not the same at every bank. Different products and schemes are offered under the category of mortgages, depending on the age and features of the product. For instance, Reverse Mortgage Loan (RML) is a mortgage product offered to senior citizens. Interest Saver is a facility provided to link home loan/mortgage account with the flexi current account. The interest, at the end of the day, is paid according to the balance between the two. There are many more mortgage products like Loan Against Property (LAP).
Myth 5: Rental income is not considered while evaluating your mortgage application
A specialised mortgage product takes rental income into account. With a large number of multinationals setting up shops, the demand for commercial and residential rental housing stock has gone up substantially in India in the past couple of years. To cater to this segment of the market, and to address the financial requirement of people renting properties, banks have introduced Loan Against Rent Receivables (LARR). Under LARR, lenders provide loan against the expected future rentals of your property.