Myth 1: Home loan interest rates are fixed by RBI
Absolutely untrue. Most lenders decide their home loan interest rates depending on several factors. As a result, interest rates vary across institutions and give you choice to take the best that suits your requirements.
Myth 2: Good credit score guarantee Loan approval
A good credit score or CIBIL score is often necessary to obtain any kind of loan. However, it is just one of the factors considered by the lender when you apply for a loan. The other crucial factors are: Age, employment status, existing financial commitments, stability of job or business, etc. While a good credit score helps improve your chances, but the other factors are also equally important.
Myth 3: Loans of shorter tenure are the best
With a shorter tenure of loan, you are forced to pay higher amounts as Equated Monthly Instalments (EMIs). Thus, firstly you need to assess your options and decide what tenure and EMI amount is best suited for your needs. Secondly, the shorter term home loan also means you will be able to take the tax benefits of IT section 80C(₹1.5 Lakhs) and IT section 24(₹2 Lakhs) only for shorter periods. Thirdly, since home loans are generally in the cheaper category of loans with associated tax benefits. Hence one can smartly invest the money in wealth creating assets.
Myth 4: It is best to opt for loans with lower interest rates
Though interest rate are important. However, interest rate is just one factor influencing the amount you are required to repay for your home loan. A lender might even reduce the interest rate and simultaneously hike the processing and loan foreclosure fee, 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.
Myth 5: Fixed interest rates 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 not true 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 continue for too long and can move in the downward direction too. Thus in the long-term, and specifically in down trending interest rate economies floating interest rate works out cheaper.
Myth 6: It is better to apply directly for a home loan
Though this generally works, however, every time you make an application, the lender will reach out to Credit Bureaus/CIBIL to fetch your credit score. Thus multiple applications will negatively impact your score and make it ultimately difficult for you to avail a loan. Thus at times, it may be better to make these enquiries through a Fintech firm, as any enquiry conducted by them is considered a “soft enquiry” and doesn’t hamper your credit score.
Myth 7: You cannot negotiate on the terms of a home loan
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 favorable terms.
Myth 8: Home loan authenticates the property’s title
While it would be convenient, this is one of the most common home loan myth. While a lender will assist in conducting due diligence of the property and related documentation, but it is the homeowner’s responsibility to authenticate the property deeds and related documentation.
Myth 9: You have to pay heavy penalties for foreclosures and prepayment
Untrue. As in accordance with RBI guidelines, NO charges can be levied on foreclosure or prepayment for home loans with floating interest rates. However, institutions may levy some charges on home loans with fixed interest rates. Thus, it’s important to understand all the terms & conditions and charges associated with your home loan rather than focus solely on the interest rate.
Now that you know the most common home loan myths, you are better placed to begin your search for the ideal home loan suited to your requirements.
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