Before applying for a home loan, check out some of the common myths you should be aware of!

The internet has enabled access to endless sources of information but that doesn’t mean everything you read online is true. Home loans too are a subject around which there are plenty of myths circulating online. Below, we highlight and bust a few such home loan myths. This should help home loan seekers gain clarity on various aspects related to securing a loan.

Myth #1 Low interest rates are better

This is one of the most common myths relating to home loans, not just because it’s untrue, but also because a claim like this doesn’t tell the full story. Usually, borrowers looking to opt for home loans first look at interest rates to make their decision.

However, home loan interest rates are just one of the factors influencing the amount required to repay your loan. There are also other important factors like processing fee, loan-to-value (LTV) ratio, and loan tenure. Thus, it’s always better to assess all the parameters before applying for a home loan.

Myth #2 Fixed interest rates are better than floating rates

This is a popular belief that doesn’t have a solid foundation. Firstly, both fixed and floating interest rates have their pros and cons. While a fixed home loan interest rate allows you to pay a specific EMI figure every month, it doesn’t take into consideration any future decline in interest rates.

A floating interest rate, on the other hand, takes into account changing market rates, which are applied to the interest a borrower needs to pay. Therefore, it’s ideal to compare rates from different financial institutions and then choose accordingly as per your convenience.

Myth #3 Short tenure home loans are the best

Home loans are essentially long-tenure loans that last for a maximum tenure of 20 to 25 years. Those submitting their home loan application for the first time mostly believe that it’s better to apply for short-tenure home loans. However, borrowers who choose short-tenure home loans typically end up paying high EMIs, which can further hamper your monthly budget, leaving little to no scope for saving anything for the future.

So, while short-tenure home loans help you become debt-free soon; they may not necessarily be ideal. Borrowers can opt for a mid-tenure loan offering mid-range interest rates and affordable EMIs.

Myth #4 Loan approval is guaranteed with a good credit score

A good credit score is essential to secure any kind of loan, not just a home loan. However, this is only one of the factors taken into account by the financial institution when you apply for a home loan.

Many other factors contribute to the approval of a loan, including age, employment status, job stability, and existing liabilities. Having a good credit score will increase the chances of loan approval, but if you are lacking in other aspects, you may still face rejection.

Myth #5 Prepayment is the best policy

There’s a common misconception that the prepayment policy is a great idea. But prepayment only makes sense when it is made in the earlier stages of the home loan (when interest payout is high).

Moreover, home loan repayment, as well as interest payments, are eligible for a tax deduction, which the loan applicants can use to reduce their tax payments. In addition, surplus funds can always be used to invest in assets that generate higher returns.

Myth #6 Borrowers are penalized for prepayment of loans

This is another myth regarding the penalty on prepayments. Borrowers must note that RBI has restricted financial institutions and banks from charging any penalty when it comes to the prepayment of floating rate loans. However, if the borrower opts for fixed interest rate loans, then some charges may be applied for repaying the home loan before the end of tenure.

Takeaway

Taking a home loan is a long-term commitment. Hence, it should be undertaken only after taking all the factors into consideration. It is essential to evaluate all aspects of the home loan before choosing a particular product. Keep the above mentioned facts and myths in mind when applying for a home loan.

DMI Housing Finance offers great benefits on DMI home loans and other financial products including home extension loans, plot purchase loans, home construction loans, home renovation loans and loan against property. Check for your eligibility for any one of the offers by submitting some basic details. If you want to apply for a home loan online, you can visit the DMI home loan customer portal today and choose a loan plan as per your requirements.

You can use our branch locator to find a branch closest to your home.

For any questions, you can also call us on or write to us at customercare@dmihousingfinance.in. For a new home loan, give us a missed call on 9772027704.