India is severely lagging when it comes to financial literacy. The prevalent home loan myths are one such prime example of widespread ignorance or misinformation. Let us highlight and bust a few of such home loan myths -

  1. Lower Interest Rates Are Better
  2. Usually, consumers opting for home loans are only looking at the interest rates to make their decisions. However, the interest rate is one such factor, with other important determinants being processing fee, loan tenure and LTV (loan-to-value) ratio. For instance, by charging a lower interest rate, the bank may hike their processing fee or even lower the LTV that tends to increase the down payment amount. So, it is always better to evaluate all the parameters before applying for a home loan.

  3. Always Go for Fixed Interest Rates
  4. With fixed interest rates, the bank can levy the same rate, which is usually on the higher side to protect their own financial risk for the whole tenure. This can be suitable if the market interest rates tend to increase, which has not been the case in recent years. Therefore, a floating interest rate would provide you with the benefits of lower interest rates also.

  5. Myths Regarding Prepayment
  6. There are two common misconceptions when it comes to the prepayment policy of banks.
    • The first myth is that the prepayment policy is the best. But borrowers tend to ignore the fact that such EMIs are tax-deductible. In addition, excess funds can always be used for investment that can fetch you better returns.
    • The second myth is regarding the penalty on prepayment. It is important to note that RBI has barred financial institutions from charging any penalty in case of prepayment of floating-rate loans. Moreover, when the borrower uses his own source of funds to repay the fixed rates loan all at once, many banks do not levy any penalty on that.

  7. Home Loans with Shorter Tenure are better
  8. A shorter tenure, even though has a low-interest rate, it will come with a higher EMI, thereby stifling your regular finances. So, the tenure should not be the criteria to avail a home loan if you have an inadequate or irregular income source.

  9. Home Loan Authenticates the Title of Your Property
  10. A home loan is mostly associated with the financing of the property and does not go deep into the title of the property. It is the complete responsibility of the buyer to verify the same before availing a home loan. Now that you are aware of all the major home loan myths, it would be easier to go for a home financing by evaluating every aspect of the loan and the lender.
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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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