The journey to owning a home can be hindered by confusion, often due to common myths about home loans. These misconceptions may cause hesitation or even lead to costly mistakes.

As housing finance becomes more accessible, it’s essential to separate fact from fiction to make informed decisions.

In this article, we will debunk eight prevailing myths about home loans, providing you with the clarity needed to make confident choices.

Common Home Loan Myths Busted!

1. Low Interest Rates Are All That Matters

Borrowers often focus on lenders offering low interest rates, assuming they guarantee savings. However, very low rates can sometimes come with hidden costs—such as higher processing fees, prepayment penalties, or expensive insurance add-ons. Instead of focusing solely on the interest rate, evaluate all such associated charges which impact the overall cost of the loan.

2. RBI Fixes Interest Rates on Home Loans

Many borrowers believe that the Reserve Bank of India (RBI) directly determines the interest rates for home loans across lenders. This is incorrect. The RBI sets the repo rate, which influences lending rates, but individual lenders decide their home loan rates based on factors such as their cost of funds, operating expenses, and profit margins. Even if the RBI increases the repo rate, lenders may not immediately increase their home loan rates.

3. Fixed Rate Loans Are Always Better Than Floating Rate Loans

Most home loans come with floating interest rates. However, fixed-rate loans are often perceived as better due to their predictability. While fixed rates provide stability, they are generally higher than floating rates and do not decrease when market rates drop.

4. Getting a Home Loan Confirms Property Title Authenticity

Some believe that lender approval ensures the property is legally sound. While lenders conduct due diligence to minimise financial risks, their assessment may not cover every legal aspect of the property. To avoid disputes, hire an independent property lawyer to verify documents like the sale deed, encumbrance certificate, and title deed.

5. Prepayment Is Always the Best Policy

Prepaying a home loan is often seen as a smart way to save on interest. While it can be beneficial during the early years of the loan, prepayment later in the tenure—when interest forms a smaller part of the EMI—yields minimal savings. Additionally, prepayment can limit your ability to claim tax benefits under Sections 24(b) and 80C. Carefully weigh the timing and benefits of prepayment against potential tax benefits and alternative investment opportunities.

6. Higher CIBIL Scores Guarantee Loan Approval

A credit score above 700 improves your chances of getting a loan but doesn’t guarantee approval. Lenders evaluate several other factors such as your repayment capacity, employment stability, and existing liabilities. While a strong credit score is crucial, maintaining a steady income, managing debts effectively, and meeting other lender-specific requirements are equally important.

7. You Can Borrow 100% of the Property Value

Lenders do not offer 100% financing for property purchases. Typically, they provide up to 80-90% of the property value, leaving the rest to be covered by the borrower as a down payment. Additionally, borrowers must budget for other costs such as registration fees, stamp duty, and taxes.

8. Self-Employed Individuals Cannot Get Home Loans

Self-employed individuals often assume they face greater challenges than salaried borrowers in securing home loans. However, many lenders assess additional parameters such as business stability, net income, and profit consistency. With proper documentation, reliable income proof, and a credit score above 700, self-employed individuals have just as good a chance as salaried applicants.

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Conclusion

Understanding common home loan myths is crucial for making informed decisions about property financing. By separating fact from fiction, borrowers can navigate the loan process more confidently and avoid costly mistakes. Remember to thoroughly research lenders, read the fine print, and consider seeking professional advice when needed.

If you're exploring home loan options, SMFG Grihashakti provides tailored solutions of up to INR 1 crore* or up to 90%* of the property’s value. Benefit from competitive interest rates starting at just 10%* per annum and flexible repayment tenures of up to 30 years*. Apply online today or visit your nearest branch for more information.