Myths about Home Loan

4 min read

Home loans are gaining popularity as a convenient way for property purchases. However, there are various home loan myths or misconceptions. To better understand Home loans, one needs to bust these myths and focus on facts instead. Some common myths about home loans are

Myth 1 – Low-Interest rates are the only key aspect

Borrowers usually tend to lenders who offer the lowest interest rate in the market. They base their decision solely on low-interest rates without assessing other parameters of loan. A lender charging lower interest rates may be levying high processing fees, prepayment penalty, other additional charges, etc. It is, therefore, necessary to analyze the loan terms considering all the charges.

Myth 2 – Fixed Rate Home loans are better than Floating Rate Home Loan

While a fixed-rate loan offers certainty in terms of the interest amount to be paid every month, it does not offer the flexibility of lower interest rates in case of a downward reset of rates by the lender.

Myth 3 – Prepayment is the best option!

In case of excess funds at their disposal, the borrower usually is tempted to immediately prepay the home loan. But is prepayment always the best option? Prepayment only makes sense when it is made during the earlier stage of the home loan when interest payout is high. Furthermore, home loan repayment and interest payments are eligible for the tax deduction, which the borrower can use to reduce his tax payments. Also, as Home loan rates are generally low, the borrower can use excess funds to invest in assets that generate a higher rate of return. Thus, prepayment is not always the best policy, contrary to popular belief.

Myth 4 – RBI fixes the Interest Rates

The Reserve Bank of India (RBI) is responsible for fixing the broad market Interest rates. It is, however, not directly responsible for fixing the interest rate on home loans for individual lenders. Lenders like housing finance companies, banks, etc, set interest rates on home loans they offer based on their cost of funds. Thus, interest rates on home loans may vary across lenders.

Myth 5 – Availing Home Loan authenticates the tile of the Property

This is one of the biggest myths regarding home loans. Though the lender conducts due diligence on the documentation and other aspects of the property, it is the sole responsibility of the property purchaser to validate the authenticity of the property’s title deeds.

Taking a home loan is a long-term commitment, which should be undertaken only after proper due diligence by the borrower. It is important to evaluate all aspects of the home loan before selecting a particular product.

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