Home loan is a product born out of the necessity of the people when they are unable to fund the dream of owning the home with the finances available in hand. The banks and lending institutions came forward stretching their helping hands by bridging the gap between the cash they have on hand and the cash that is needed to purchase a home. This financial assistance is termed as a home loan. However, the eligibility of home loan depends on various factors like the income of the borrower, credit score and many other eligibility criteria levied by a specific bank. Even in the case of this unique loan product, there are a lot of misconceptions that will misguide perspective borrowers.
Home Loan Misconceptions -To Keep Away From
Fixed interest rates are the best deal always
When you are in search of a home loan to own a home, you might have heard of these loans are offered at two types of interest rates. One is fixed and the other is floating. Fixed rate of interest is not subject to market fluctuations whereas floating rate of interest change according to market trends. Fixed rate of interest is generally higher than the floating. Under the misconception that fixed rate of interest remains constant throughout the tenure, most of the borrowers to choose to go for it in spite of interest rate being comparatively high. Here is a catch, even the fixed rate of interest are subject to revisions at regular intervals and you will be liable to pay high rate if the bank raises their rate of interest. If there is a reduction in the floating interest, you will not be able to gain the benefit.
Home loan can be availed for buying new property
Against the misconceptions of the borrower, a home loan can be availed for many other reasons other than purchasing the new property. A different purpose for which home loan can be availed for include purchase of land, home construction, home renovation, NRI home loans, old property purchase loans( depends on the age of the property). However, the tax benefits differ from the type of the home loan you avail.
Tax benefits are offered only on principal
Most of the borrowers are under a misconception that tax benefits are offered only on the principal amount of the home loan. In reality, these tax benefits are offered both the principal amount as well as interest rates. If you are taking the home loan for home renovation projects, you can avail tax benefits on the interest rates offered. If you are taking the home loan for the purchase of the land, you will not be eligible for any tax benefits because this purchase is considered as an investment than necessity.