Home Loans

There are various myths or misconceptions surrounding home loans that are prevalent in the market today. Now as the interest rates have gone up, you must pay attention to computing your EMIs on home loans well, to avoid levying additional charges i.e., more than your repayment capacity. With so many myths surrounding home loans, it is obvious for you to fall prey to specific myths surrounding home loans. These myths include –

No. 1 myth – high-interest rate equates to inflated monthly instalments

The instant reaction of many of you as home loan applicants may be that when being charged a higher interest rate on a home loan, you often presume that you would be charged a higher monthly instalment which may give rise to several financial issues. Many financial institutions try and make the loan EMI payments easier for you as a customer and hence increase your repayment tenure to allow you to serve the same EMI as you were serving monthly. While over the long term, you may end up paying huge interest constituents, your monthly financial planning is not impacted if your interest rates are high. So, next time the home loan rates increase, do not panic. You may also consider calling up the respective home loan lenders to check your outstanding balance and decide if you can opt for the part prepayment option to reduce your loan burden slightly. For instance, suppose you are serving a Bank of Baroda home loan, then you must consider calling up the Bank of Baroda balance check number to know your outstanding balance on your home loan to predetermine if you can part prepay the outstanding. The same would be the case for IDBI bank. You must consider calling up the IDBI bank balance check number

No. 2 myth – Prepayment brings in penalty fees

This is certainly not true. Usually, prepayment fees are charged during the first 3-5 years of a home loan. Also, ensure that the fees levied go down over the repayment tenure. Few lenders or banks might not incur prepayment charges if you are serving a floating interest rate. It totally depends on the lender’s nature. 

If you are looking to repay your home loan debt through your personal investments or savings, you will not get impacted by such fees. Most lenders or banks usually tend to waive the prepayment penalty unless you choose the home loan to refinance option from distinct lenders. Most lenders permit prepayments of as high as 25 per cent of the outstanding loan amount in a financial year. 

No. 3 myth – loans with the lowest interest rates are good

This is a popular idea that exists in the market that a lower home loan interest rate is the best. However, what you consider is not all the time true. If a home loan provides a low-interest rate but levies a penalty for prepayment, legal valuation charge, etc., then you may end up paying much more than perceived. Ensure to read the fine print well to make sure that there are zero hidden fees on your home loan. You always must ensure to compare your home loan before picking one instead of straightaway going for the one that appears cheaper. 

No. 4 myth – fixed interest rate home loans are better as compared to floating home loan rates

You must not be influenced by the specific word when it is about the interest rate. If you select a fixed-interest rate home loan, it may not mean that you will enjoy the same interest rate across the whole repayment tenure. With fixed interest rate home loans, rates stay the same just for specific periods. The remaining tenure is often subject to a money market clause and resetting the rate of interest. 

No. 5 myth – financial institutions are not concerned regarding your employment status

This is a popular misconception prevalent in times like such. Financial institutions are often concerned regarding the home loan applicant’s status of employment. You as an applicant must ensure to keep the lender posted regarding your retirement, unemployed phase, employment status and others. Home loan agreements often do come with a clause that mentions if you as an applicant are not able to clear your home loan debt, your current employer may be liable to pay the outstanding home loan amount. 

No. 6 myth – property insurance is not the borrower’s responsibility

Most home loan contracts clearly mention that your property should be protected against natural calamities such as floods, fire, etc. The financial institution can add the property insurance cost to the home loan availed by you. Accordingly, you may even require paying the premiums, which may be payable along with your month-on-month instalments. Make sure to have a discussion with the financial institution regarding your property insurance to come to a common ground. Otherwise, you may have to end up spending a lot. 

No. 7 myth – Choosing home loan for tax deductions

You can get tax deductions when you opt for a home loan. However, this idea at times propels you to invest in lands or properties even if you do not need one at a point of time. Suppose your spouse and you fall under the highest tax slab, then availing a home loan tax deduction makes full sense. However, only because you want to pay lower taxes, and hence choosing a home loan for this purpose does not make any sense. There are other crucial options that may be opted for in case you are looking for lesser tax deductions.  

No. 8 myth – High credit score and profile assures home loan approval

The last important notion is if your credit score is high, you can easily avail a home loan. Ensure to understand that credit score is not just the only parameter that determines your home loan eligibility. There are various other parameters determining your loan eligibility. CIBIL score is one of the crucial parameters factored in by lenders or banks. There are other important credit bureaus too that provide you with credit reports. Make sure that you hold more than one credit report that justifies your credit score. A mismatch in score can even result in disapproval of your loan application. Figure out the reason for the mismatch and get your reports verified and corrected as soon as possible.


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