Most Common Home Loans Myths One Should Be Aware Of

A home loan is an easy way to finance your dream home without exhausting all your hard-earned money. However, often people have various misconceptions that deter them from availing the benefits of a home loan. These myths often scare borrowers, preventing them from availing a loan and thus delaying their dream of purchasing a house. Here are some myths about home loans that you should know about.

Myth: Loans with the lowest rates are the best 

Truth: It is natural to get attracted to the lender that offers the lowest rates on a home loan. But, let us tell you that a home loan with the lowest interest rate may not always be the best and it is just one of the common misconceptions on home loans. The lender might offer you a low-interest rate but could be charging a higher processing fee, prepayment penalty, and other additional fees. While choosing a lender, it is important to consider all the factors and make an informed decision after a holistic review of the lender. A lender offering a relatively high interest rate could be offering a better service and hassle-free loan processing.

Myth: Prepayment accompanies penalty

Truth: Yes, some lenders levy prepayment and foreclosure charges when you repay the loan before the end of its tenure, but it is not true always. According to the Reserve bank of India, banks cannot charge any foreclosure charge or penalty on prepayment of a home loan availed on floating interest rate. While there is no such rule for fixed interest rate loans, not every bank charges a foreclosure fee on prepayment of a home loan.

Myth: Fixed interest rate is always better than floating rate

Truth: This is one of the biggest home loan misconceptions. While in fixed interest rate, the rate of interest on a home loan is constant for the entire tenure of the loan, the floating rate of interest is based on the market rates which sometimes can be a benefit. Though in the floating rate of interest, your interest rate can increase during the tenure, it can also decrease with the fall in market rates. Usually for a longer tenure, the floating rate of interest could turn out to be more cost effective than the fixed rate.

Myth: High credit score guarantees loan approval

Truth: It is no secret that you need to have a good credit score to get the loan application approved. However, a high credit score does not necessarily guarantee quick loan approval. This is because a credit score is not the only factor determining eligibility. Your income, employment details, age and profession could also play a crucial role in getting a loan approved. Lenders approve your loan only if you fulfil all the eligibility criteria of the home loan. Therefore, it is suggested to check your eligibility through an eligibility calculator before applying.

Myth: Hike in interest rate always means an increase in EMI payout

Truth: Many home loan borrowers fear that they will have to pay a higher EMI if there is an increase in the interest rates. But it is not always true. To make EMI payment easier for you, lenders often increase the tenure of the loan when the interest rate increases. Though this might increase the total interest payout over time, this helps to keep the EMI amount balanced and does not alter your monthly payout. However, if you are financially capable, it is advisable to opt for a higher Home Loan EMI to reduce the overall interest payout over the loan tenure. 

Home loan myths can create hurdles in your path of buying your dream home. Therefore, it is important to take a step ahead only after complete due diligence and guidance. Bust these myths on home loans with us and buy your dream home today.