5 Common Myths about Home Loans You Need to Know

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Common Myths About Home Loans: All You Need to Know_WC

5 min 08 Apr 2024

Highlights:

Understanding Myths Associated with Home Loans
Debunking Home Loans Myths

A Home Loan is a long-term financial commitment. It is advisable to avail of a Home Loan after carefully understanding this financial product. In this process, borrowers may come across some common Home Loan myths, preventing them from opting for a Home Loan. In this article, we aim to debunk such myths, so that you can start your homeownership journey with confidence.

Myth#1: Interest Rate is the Only Factor to Consider

The Home Loan interest rate determines the feasibility of the loan. Consequently, when you get a low interest rate Home Loan, repaying the loan can become easier. However, the interest rate isn't the only factor that you should consider. Sometimes, a lender may offer you a Home Loan at a low interest rate but charge other fees, for instance, a legal valuation fee. Thus, borrowers should consider other fees and charges besides the interest rates.

Myth#2: You Will Be Charged a Prepayment Penalty on Home Loans

Individual Borrowers who have availed of a Home Loan on floating interest rates can prepay or foreclose their loan at any time they want without paying any additional charges. However, for fixed rate Home Loans, prepayment charges apply if payment is not made from 'Own Sources'.

Note: 'Own Sources' refers to any source other than borrowing from a bank/NBFC/HFC and/or a financial institution.

Also Read: Five Important Factors to Keep in Mind When Prepaying Your Home Loan

Myth#3: Lenders Only Consider Your CIBIL Score While Deciding on Your Home Loan Application

While having a good credit score, typically above 750, significantly increases the chances of getting approved for a Home Loan, it's not the sole deciding factor of an individual's Home Loan eligibility. Lenders also consider other factors, such as the applicant's employment status and income stability, age, and location of the property pledged as a security while deciding on a Home Loan application. Therefore, sometimes borrowers may get approved for a Home Loan, even though they have a low credit score.

Myth#4: One Should Always Opt for a Short Tenure

One can opt for a short Home Loan tenure if their financial standing allows them to repay the loan easily in the given duration. While opting for a shorter loan term leads to reduced interest payments, it also means having to pay higher monthly instalments. It's important to choose a term that allows you to make manageable payments without compromising other financial goals. Manageable EMIs can also help in making timely payments and avoiding any penalty charges. Additionally, many lenders offer options for early repayment, giving you the flexibility to shorten the loan term in the future if your financial circumstances improve.

Myth#5: Fixed Rate Home Loans are Better than Floating Interest Rate Home Loans

Both type of interest rates have their own set of advantages. The floating rates are subject to change based on market conditions. This option can be beneficial during periods of rate decreases, offering the possibility of lower repayment amounts over time. The fixed interest rates remain unaffected by the market conditions. Therefore, they offer predictability as the interest rate remains constant until the interest reset date.

Additional Read: Fixed vs. Floating Interest Rates

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