20 Myths About Home Loans in India

20 Myths about home loans in India

You are living in an age of information. Finding the right and relevant information for any loan, especially a home loan, is not difficult for you. However, getting the right information is still a challenge, and this post will convey the 20 home loan myths that many people tend to believe. These myths came into being due to information overload, half-truths, misconceptions or misinterpretation. Here are 20 myths about home loans, busted for you!

  1. Picking up lower interest rate is better: Don’t let the big shiny advertisements of “Home loan at the lowest interest rates” fool you. The home loan interest rate does not reflect the actual home loan cost. APR (Annual Percentage Rate) reflects the true cost of your loan, which includes principal amount, interest, tenure, processing fee, file charge, stamp duty, mortgage insurance & EMI.
  2. Fixed interest rate will remain fixed for the entire tenure: Not only borrowers but many finance experts also believe that a fixed rate on a home loan will be fixed for the entire term. Truth be told, the fixed interest rate is fixed only for a specific period (often 3 to 5 years), not for the entire period of the loan.
  3. Fixed interest rate is preferred to floating interest rate (or vice versa): Both have their own pros and cons and neither is better than the other. If you need positive assurance about future cash flows, then you may choose fixed interest rate; if you want to take advantage of fluctuations in interest rates, then you may go for floating or variable interest rate for your home loan. Check out a home loan interest rate calculator to understand how much you’d have to pay as EMI.

  4. Source of lower interest rates: Big banks are always not the best source for you to get the best home loan deal. NBFCs and other smaller banks may give you a low-priced interest rate for your home loan. Apart from the interest rate, if you need higher loan amount, then NBFCs and other licensed lenders would be better options than big banks.
  5. All banks offer similar interest rate: It is your lack of research if you think that all banks are offering the same interest rate for a home loan. Even if a few big banks offer the same interest rate on a home loan, still you can still find a vast difference on their processing fee and other charges.
  6. Government or central banks decides the interest rate of home loan: Although they are not interrelated to your home loan interest rate, each bank or NBFC has its own home loan rate based on their average cost of fund.
  7. Applying directly to banks is a smart idea: Getting exposed to various options is always smarter than applying to one bank only. Applying through online marketplaces like mymoneykarma would be better than applying directly. This will not only save your time and money but also help you to get a free expert advice.
  8. Choosing your current bank in a smart way: ‘Research before you decide’ is the best plan of action for smart borrowers. It will help you to choose lower interest rates, lower fees, and better loan features.
  9. People with higher income will get high loan amounts: DTI (Debt-to-Income Ratio) and estimation of your property or construction costs determine your loan amount. DTI (Debt-to-Income Ratio), in simple words, is a figure that determines how much you can afford to repay each month.
  10. Financial experts at online marketplaces charge an extra fee: No reputed broker, DSA, consultant, agent gets their fee from lenders. When you apply through these offline mediums, you are the own bearing their fees. As technology has evolved, online finance consultants like mymoneykarma have come up. Such companies not only help you find the best loan deal but also impose zero charges on the borrower for the process.
  11. Banks don’t negotiate the fee and other charges: Generally, borrowers focus on negotiating on the interest rate. Did you know that you can negotiate on every kind of fee with banks or lenders? Whether it is the processing fee, stamp duty, franking fee, file charge or service charge – a negotiation can get you a far better deal. Why don’t you let us help you with this? We are sure to get you a better deal!
  12. Banks and NBFCs charge the relevant penalty on prepayment or foreclosure fee: If you are in India, then you are surely worrying about prepayment penalty or foreclosure charge of your home loan, right? Well, according to RBI directions, no bank or NBFC can charge any fee or prepayment penalty on a home loan.
  13. Healthy credit score guarantees home loan approval: This is the biggest misconception that most of the people have – a good credit score is enough for home loan sanction. Credit history is only one among many criteria to approve your home loan. Lenders may reject your home loan application despite good credit score as various other factors come into play.                                                                                                                                                                                                                            
  14. Poor credit score means no home loan:  It is good to have a positive credit score, but a bad credit score does not kill your chances of getting a home loan. Traditional banks may reject your home loan application, but still, you can get the loan from other different lenders on higher interest rates.
  15. Pre-qualified offers are equal to home loan sanction: Pre-qualified offers no longer guarantee your home loan. Before the release of your home loan, all lenders will assess all your documents and your credit score. So, these offers are nothing more than guess-work.
  16.  The process of the home loan is almost the same: There are multiple products related to the home loan that are available in the market to suit your needs. So, choose a home loan that fits your needs. The process of application, approval and sanction differ for each type of loan.
  17. Protection plans are mandatory: Some lenders want to cross-sell their life protection policies or home loan protection plans to home loan buyers. This is called cross-selling, and you need not buy any kind of home loan protection plan or life insurance policy to get a home loan.
  18. Property insurance is mandatory: Property insurance is not a compulsion while taking a home loan. However, a few companies can make it mandatory in their terms and conditions. Generally, it is optional to insure your home or property while getting a home loan.
  19. Plan your home loan payment in the right way: It’s not always smart to pay off your loans early. The home loan provides you many benefits including income tax and appreciation in the value of your property. So, talk to mymoneykarma experts before prepaying your home loan.
  20. Refinancing is expensive: Refinance or transfer your existing home loan if you are looking for lower EMI and avoid prepayment penalty and foreclosure charges.         


Home Loan is a long-term commitment; so, don’t get trapped by the above assumptions and choose an appropriate home loan product, If you are confused, then drop your concern to us and we will get in touch with you shortly.