Home loans have become a preferred choice for many people who wish to buy a house but do not have the full amount available. While applying for a home loan seems straightforward, many still fall for common myths. These myths can lead to poor decisions, added costs, or missed opportunities. Understanding the facts behind these myths can help borrowers make informed and confident financial choices when purchasing property.
Many borrowers choose lenders based solely on the interest rate offered. While a low interest rate can reduce the monthly instalment, it should not be the only deciding factor. Other charges such as processing fees, late payment penalties, legal costs, and prepayment fees also affect the overall loan cost. A loan with a slightly higher rate and lower hidden charges may be more economical in the long run.
There is a widespread belief that the Reserve Bank of India directly sets home loan interest rates. The truth is that while it sets base rates like the repo rate, individual lenders set their own rates based on their operational costs, risk assessments, and funding sources. This is why two banks may offer different rates to the same borrower profile simultaneously. Borrowers should compare rates across lenders before deciding.
Fixed rate loans give predictability because the interest rate does not change throughout the loan tenure. However, if market rates fall, borrowers with fixed rate loans miss out on the benefit of lower interest payments. On the other hand, floating rate loans adjust based on market trends. Borrowers who choose fixed rate loans may pay more in interest over time if rates decrease during the loan period.
Many believe that if a bank has approved a home loan, the property must have a clear legal title. But this is not always true. Lenders do conduct checks, but their assessment may not be comprehensive. The buyer remains responsible for verifying the ownership history, checking for disputes, and ensuring all approvals and documents are valid before finalising the purchase.
It is commonly assumed that using extra funds to prepay the home loan is the most efficient financial choice. While prepaying early can save on interest costs, it might not be beneficial later in the loan tenure when the interest portion is low. Also, home loans offer tax benefits, which get reduced with lower interest payments. If the excess funds can earn better returns elsewhere, prepayment may not be the best use of that money.
Choosing a longer tenure can reduce the monthly burden, but it increases the total amount paid due to extended interest payments. On the other hand, a shorter tenure means higher monthly instalments but lower overall interest. Borrowers must strike a balance between affordable EMIs and total costs. A good practice is choosing the shortest tenure that comfortably fits one’s monthly income and lifestyle needs.
Some lenders require borrowers to purchase property insurance before sanctioning the loan. This insurance protects the asset against damage due to natural disasters or accidents. It does not cover loan repayments in case of job loss or death unless combined with other policies. Borrowers should read the insurance terms carefully and understand the cover provided before agreeing to it as a part of their loan deal.
Your credit score plays a key role not just in approval but also in the interest rate and loan amount. A higher score shows good repayment history and financial discipline, making you a low-risk borrower. This can lead to better loan terms. Those with a poor score might face higher interest rates or be asked for a guarantor. It is wise to check your credit score and improve it before applying.
Many believe home loans take a standard number of days to process. In reality, the duration can differ based on the lender’s internal procedures, your documentation, and property location. Some banks offer quicker processing with digital tools, while others take longer due to manual checks. Understanding the process and timelines can help avoid delays in property transactions and better plan the purchase.
Lenders do not fund the entire value of the property. Usually, only 75 to 90 percent of the property’s value is sanctioned as the loan, depending on the borrower’s income, credit profile, and the lender’s policies. The borrower must arrange the remaining amount as a down payment. Knowing this helps in better financial planning before starting the property search.
Understanding the truth behind common home loan myths can protect you from making costly mistakes. A home loan is a big financial decision and should be taken only after careful thought. From interest rates to property verification, every step matters. Do your own checks, compare options, and seek expert help if needed. Making informed choices now will help ensure a smoother home-buying journey and better peace of mind in the long run.
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