In India, most of the aspiring home buyers rely on getting a home loan to fund the purchase of their dream space. It is a convenient and practical way to get the desired funds rather than using all your savings. Home loans allow you to repay the amount in smaller instalments over a longer period.
While many lenders in India offer a variety of home loan products to suit the different needs of borrowers, people have many misconceptions about it. If you are a first-time home loan applicant, it is advisable that you steer clear of such myths and focus on the facts. For your benefit and convenience, we list down a few common home loan India myths and the truth behind them.
It is best to avail a home loan with the lowest interest
The home loan interest rate is a critical factor to consider while choosing the best offer from different as it has a direct impact on the EMI amount and affordability. However, you must not choose the lender, or the offer based on the low interest rate alone. There are other crucial factors too like prepayment penalty, processing charges, flexibility in repayment terms, etc. You must compare the loan offer holistically before making your final borrowing decision.
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The Reserve Bank of India fixes the home loan interest rate
Whilst it is true that the RBI fixed the broad market interest rate for all kinds of loan, it does have any direct involvement with fixing the home loan interest rate charged by individual financial organisations. Lenders such as housing finances companies and banks set the interest rate based on their cost of funds. Therefore, the home loan interest rate varies from lender to lender.
It is better to opt for a home loan with fixed interest rate than floating rate
As the name suggests, in a fixed interest rate home, the interest remains unchanged throughout the loan tenure. Whereas, in a floating rate home loan, the interest varies based on various external factors.
While the fixed rate home loan gives you certainty about the interest you must pay every month, and allows you to have a fixed budget, it does not allow you to leverage the benefit of a downward interest rate.
Getting a home loan approved guarantees clear title of the property
This is probably one of the biggest myths associated with home loan. Although the lenders thoroughly check the property-related documents before approving the loan, it does not guarantee that the property does not have any title issues. Hence, as a borrower, it is your duty to verify the papers carefully to ensure that the property has no legal issues.
Prepaying the home loan is the best way to repay the amount
It is a general notion that it is best to repay the home loan before the actual tenure and close the account. However, experts suggest that prepayment is not always the best option. It is better to prepay during the initial stages of the home loan when the interest pay out is high.
Also, since the home loan rates are generally low, you can use the funds to invest in different assets and generate higher returns and build a corpus for your future needs.
When you apply for a home loan, make sure that you are aware of the myths and steer clear of them.