Home Loan Myths in India

1. There are several other factors that play a crucial role in the lender deciding whether you can avail the home loan, including your age, employment status, existing EMI commitments, job stability, etc. While a good credit score can help improve your chances, you will not be able to avail a home loan if you are lacking on the other factors.

2. Loans of shorter tenure are the best
   A major home loan myth is that it is better to opt for a home loan with a shorter repayment tenure. However, with a shorter tenure, you are forced to pay higher amounts as Equated Monthly Installments (EMIs). Thus, it is best to assess your options and decide what tenure and EMI amount is best suited for your needs.

3. It is best to opt for loans with lower interest rates
   Interest rates are just one factor influencing the amount you are required to pay to repay your home loan. A lender might even reduce the interest rate and simultaneously hike the processing fees, which can make repaying the loan significantly more expensive. Thus, it is important to check all the fees and charges as well as interest rate while selecting a home loan.

4. Home loan interest rates are fixed by RBI
   Another common home loan myth is that the Reserve Bank of India (RBI) fixes the interest rates for home loans. This is absolutely untrue since most lenders decide their home loan interest rates depending on several factors. As a result, interest rates vary across institutions and give you more choices in terms of picking home loans that best suit your requirements.

5. Fixed interest rates on home loans are better than floating interest rates
   While it is commonly believed that fixed interest rates are better for a home loan than floating interest rates, this is untrue for several reasons. While fluctuations in the market can result in the floating interest rate changing too frequently, it is still generally 1.5% to 2% lower than the fixed interest rates. Additionally, market fluctuations might not last too long, and in the long-term, you will end up paying lesser if you opt for a floating interest rate.

6. You have to pay heavy penalties for foreclosures and prepayment
   Another home loan myth is regarding how banks and other financial institutions that offer loans also levy heavy penalties if a borrower wishes to foreclose or prepay their loan. This is untrue in accordance with RBI guidelines that state no charges can be levied on foreclosure or prepayment for home loans with floating interest rates. However, institutions may choose to levy these charges on home loans with fixed interest rates, which may again vary from across institutions. This is why it’s important to understand the different charges associated with your home loan rather than focus solely on the interest rate.

7. It is better to apply directly for a home loan
   A common home loan myth is that it is best to apply directly for a home loan with a bank or financial institution. However, this is a myth since every time you make an application, the lender will reach out to credit bureaus to understand your credit standing or score. The multiple applications will negatively impact your score and make it ultimately difficult for you to avail a loan that is suited well with your requirements. It is best to make these enquiries through a FinTech portal since any enquiry conducted by them is considered a “soft enquiry” and will not hamper your credit score.

8. A home loan ensures and authenticates the property’s title
   While it would be convenient, this is one of the most common home loan myths. While a lender will assist in conducting due diligence of the property and related documentation, it is the homeowner’s responsibility to authenticate the property deeds and related documentation.

9. You cannot negotiate with the bank on the loan terms

Many people believe that whatever terms of the loan are given to them by the lender are final, they do not get any say in that. This is not true, you can always negotiate with your lender for more favourable terms.

Now that you know the most common home loan myths that abound in India, you are better placed to begin your search for the ideal home loan suited to your requirements.