Home Loan Myths busted

Home Loan is a secured loan as it is provided against the property that one buys. It is easy to get this loan and is faster because the property will work as collateral.

There are so many myths around home loans in India. Here are some of them.

  • RBI fixes the interest rates of home loans: RBI has no direct role in fixing the interest rates for the home loans. RBI only formulates the policy which increases or decreases the cost of funding for banks.
  • The title of the property is the Bank’s responsibility: A home loan is like a personal loan and property papers are just a collateral against the loan. The title of the property is the buyer’s sole responsibility.
  • Bank staff can influence the home loan approval: The bank staff (the front end staff) has no role in the home loan approval or dispersal process. Every bank has a separate team for risk assessment/ home loan approval.
  • Longer home loan tenure is good: The bank usually pitches a long tenure home loan because it means more interest income for the bank. There is a substantial increase in the cost of acquisition of the property for higher interest. Until and unless it is necessary, one should keep the EMI as high as possible and tenure as short as possible.
  • Avail home loan for tax deductions: Just because you want to pay less taxes, you should not go for a housing loan as it makes no sense. There are other options to lower your tax deductions.
  • High CIBIL Score means guaranteed home loan approval: Loan cannot be taken for guaranteed if you have a high/ good CIBIL score.
  • Pre-payment always brings in penalty charges: This is not always true as many banks or lenders may not charge for pre-payment or pre-closure of home loans. It completely depends on the financial institution.
  • Loans with lowest rates are best: There are charges like legal valuation fee, penalty for prepayment, etc. associated with home loans. If a home loan offers low interest rate but charges more for the other additional charges, you will just end up paying more for an actually cheaper home loan.
  • Fixed rate home loans are better than floating rate: It does not mean that the interest rate will be the same throughout the entire tenure of the loan if you opt for a fixed rate home loan. The rate remains the same only for a particular period even with fixed rate home loans.

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