Debunking Common Home Loan Misconceptions

When people start the process of becoming homeowners, they frequently come across a variety of myths about home loans. That is why, through this guide, we aim to clarify some of the most common and widespread misconceptions around a home loan. We will highlight the significance of transparency in the loan application process and the reality behind this process.

Myth 1 – High Interest Rates Lead to Inflated Monthly Payments

When you, as a borrower, receive a higher interest rate on your home loan, you may immediately think of raising your monthly payments. This impulsive decision may put you in financial jeopardy.

To avoid paying a large monthly instalment, the bank might extend the term of your home loan if the interest rate is high. However, in the long run, you may pay a significant amount in interest.

The lender’s interest rate is dependent upon various factors, including your age, proof of income, etc. If you are young and have solid earnings, the lender will reduce your interest rate, and therefore, you will not have to be concerned about excessive EMIs going forward.

Myth 2 – Penalty Charges Are Always Associated with Prepayment

Prepayment penalties are typically applied to home loans during the first three to five years. Additionally, the fee decreases during the term of the home loan. In some cases, prepayment might not be charged by certain banks or other lenders.

Should you choose to use your own funds to pay back the home loan debt, you will not be subject to these fees. Prepayments on a home loan may total up to 25% of the balance due within a single fiscal year. Nevertheless, some banks may impose a 2-4% prepayment penalty on overpayments that are greater than that.

Myth 3 – The Best Interest Rate Loan is the Lowest

The consensus in the market is that home loans with lower interest rates are the best. If a home loan appears to be less expensive, you could end up paying much more if it has a low-interest rate. It is accompanied by fees such as a legal valuation fee or a prepayment penalty.

Study the fine print thoroughly to make sure your home loan has no unstated or hidden costs. It is generally suggested to compare home loans before choosing one, as opposed to choosing the first one that appears to be less expensive.

Myth 4 – Home Loans with Fixed Rates are Superior to Those with Floating Rates

Securing a fixed-rate home loan does not guarantee that the rate will remain constant for the duration of the loan. Only a certain amount of time is spent on a fixed-rate home loan where the rate stays the same. For the remainder of the duration, the interest rate resets, and the finance market clause follows.

Myth 5 – The Applicant’s Employment Status is of No Concern to Banks

Concerns over the job status of home loan applicants are significant for banks. The applicant needs to update the bank or lender on all relevant information, including retirement, employment status, period of unemployment, etc. 

Myth 6 – The Whole Down Payment Must Come from Savings Account

A common misconception among soon-to-be homeowners is that they need to use all their savings for the down payment on a property. Financial institutions frequently permit a portion of the down payment to come from other acceptable sources, such as financial support from family members or employers — even though having ample funds is valuable. Gaining knowledge of these adaptable choices can minimise the buyer’s stress and increase accessibility to homeownership.

Myth 7 – It is Unachievable to Have a High Credit Score

Another popular notion is that a home loan is exclusively available to those with perfect credit scores — many financial organisations provide home loans to people with diverse credit scores.

Although having a high credit score is helpful, it is not the only consideration. It is important to understand that keeping your credit score high through responsible money management greatly increases your chances of getting a home loan on terms that are beneficial for you.

Get the Best Home Loan Today!

If you understand the intricacies of home loan terms, conditions, repayments, and other significant concepts, you can make an informed financial decision. To secure the best home loan, you can use online resources.

Research and select one of the reputable financial institutions like Tata Capital. You can have various home loan packages to meet a range of budgetary requirements. Whether you want to upgrade your house or buy a property for the first time, Tata Capital offers affordable interest rates and solutions that are tailored to meet your needs.

Homeownership is now more convenient and accessible because of its customer-friendly policies regarding credit ratings, down payments, and prepayment alternatives.