Myths About Home Loans

Taking a home loan may be the most important decision you take in your life. It may also be the biggest loan that you take responsibility for. Considering that very few people today will be able to afford a house of their own without the help of a home loan, chances are that you either already have a home loan to your name or are considering applying for one. You may have done a lot of research online, talked to your family and friends, even consulted with a financial expert, and still have a lot of unanswered questions about home loans in your mind. You may have accumulated a lot of myths too. Let’s take a look at the most common home loan related myths and debunk them one by one. 

1. Lower interest rates are actually lower interest rates: If you are swayed by advertisements that say lower interest rates, don’t commit just yet. Because what really matters is the Annual Percentage Rate (APR) which is the actual cost of your loan and includes the processing fee, principal amount, mortage insurance, stamp duty, file charges, etc. So find out what the APR will be and then commit to a loan. 

2. All banks will have the same interest rate: While the Reserve Bank of India lends at the same interest rate to all banks, which is called the repo rate, banks can decide on their own what their lending rate to customers will be. So this can vary from bank to bank. Interest rates may also depend on your credit score, which could lead to more variations in interest rates if you are comparing what you get from a bank and what your friend gets from the same bank. 

3. Fees are non-negotiable: The fact is that you can negotiate on almost any fee that has to be paid, such as processing fees, service charges, file charges, franking fee, stamp duty, etc. Unless you ask, you will never know if you will get a lower rate or not and there’s no harm in asking and finding out for yourself. So take out your negotiating chops and get started. 

4. You have to pay a heavy fine for pre-payment or foreclosure: Banks that offer home loans on floating interest rates do not charge any fee for foreclosing a loan or making a part payment on it. 

5. If your credit score is low, your application will be rejected: This would depend on the terms and conditions of the lender, but having a poor credit score is not the end of the world. At the most, you may get higher interest rates than others with better credit scores, but chances of your loan getting turned down are less. 

6. It is mandatory to buy a protection plan along with your home loan: No, it is not mandatory to buy any kind of insurance or protection plan from the lender that is offering you the home loan. This is entirely your choice. While it is good to have your home or property insured and even have your home loan insured in the case of any eventuality, it is not mandatory. 

7. It is expensive to transfer your home loan to another bank: If you are already a few years into your home loan, you may be thinking of transferring your home loan to another bank but think that it is too expensive. However, there are advantages of taking a home takeover loan from another bank with a lower interest rate. Not only will your EMIs be lower, but you may also be able to avail a top-up loan at no extra cost that can be useful to you to furnish or renovate your home. 

Now that you know which are the most common myths, you can go confidently to either apply for a new home loan or get it refinanced without any worries.