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Home Loan Misconceptions – Top Myths

Myth 1

"If my CIBIL score is above 750, home loan approval is guaranteed."

Reality: Credit score is one factor among many. Banks also evaluate income stability, employment history, debt-to-income ratio, property details, and market conditions. A 750+ score improves approval odds significantly but doesn't guarantee it.

Why this is dangerous

You may approach a lender confidently only to be rejected due to employment instability or inadequate income, wasting time and triggering hard inquiries on your credit report.

Practical Example: Priya from Delhi

Initial Reject

Scenario: Priya has a CIBIL score of 780 but was employed for only 1 year in her current role.

Attempt 1:
Result: Rejected
Reason: Insufficient employment tenure (Banks prefer 2+ years).
Attempt 2 (1 Year later):
Result: Approved
Reason: Employment tenure requirement met.
Pro Tip: Check with your lender on all eligibility criteria before formal application. Soft pre-approvals (soft inquiries) don't harm your credit.
Myth 2

"Shorter loan tenure (10 years) is always better than longer tenure (20+ years)."

Reality: Shorter tenure means higher EMIs and faster principal repayment; longer tenure means lower EMIs and higher total interest. Choose based on your income, goals, and investment potential.

Why this is dangerous

Forcing a 10-year tenure when you can only afford ₹30,000 EMI (vs. ₹40,000 needed) leads to financial stress, missed payments, and credit score damage.

Practical Example: Rohan (Earns ₹80k/month)

Loan: ₹40 Lakh @ 7.5%
10-Year Tenure
EMI: ₹4.76 Lakh/year
60% of Income (Unaffordable)
20-Year Tenure
EMI: ₹3.98 Lakh/year
50% of Income (Manageable)

*Rohan chose the 20-year option, secured approval, and avoided financial strain.

Pro Tip: Use DTI ratio (Debt-to-Income = Total EMIs ÷ Gross Income). Keep it below 50% for financial comfort.
Myth 3

"I must make the highest down payment possible to reduce interest cost."

Reality: A higher down payment reduces total interest but ties up liquidity. If you have high-return investment opportunities or need emergency reserves, a moderate down payment (10–20%) is wiser.

Why this is dangerous

Over-paying for a down payment could deplete your emergency fund, forcing you into high-interest personal loans during medical/job emergencies.

Practical Example: Ananya (Savings: ₹30L)

Comparison
Option A: 50% Down
Down Payment: ₹1 Cr
Result: ₹32.26L Interest Paid.
Low liquidity.
Option B: 20% Down
Down Payment: ₹40L (Invest rest)
Result: Net savings ₹15+ Lakhs
Due to 9% inv. returns vs 7.5% loan rate.
Pro Tip: If your home loan rate (7.5%) is lower than your investment returns (9%+), take a moderate down payment and invest the rest.
Myth 4

"Home loans from public sector banks are always cheaper than private banks."

Reality: Interest rates vary by bank and creditworthiness. What matters is your final cost (interest + fees + insurance), not just the base rate.

Why this is dangerous

You may apply only to public sector banks and miss a better overall deal from private lenders.

Practical Example: Mr. Kumar (₹40L Loan)

Cost Analysis
Public Bank
Rate: 7.2%
Processing Fee: 1%
Total Cost: ₹79.20 Lakh
Private Bank
Rate: 7.5%
Processing Fee: 0.5%
Total Cost: ₹79.00 Lakh

Winner: Private Bank (saved ₹20,000 despite higher interest rate)

Pro Tip: Always compare the full cost (EMI + processing fee + insurance + prepayment penalties), not just interest rate.
Myth 5

"Balance transfer is always good if I can get a lower interest rate."

Reality: Balance transfer helps only if new rate is significantly lower, you have enough tenure remaining to recover switching costs, and you don't extend the tenure.

Why this is dangerous

Switching banks with only 2 years remaining tenure and paying ₹30,000 in switching costs to save ₹5,000 in interest is a net financial loss.

Practical Example: Ms. Deepa

Transfer Analysis

Outstanding: ₹15L @ 7.5% (5 Years remaining)

Current Bank Cost
Outstanding + Interest
Total: ₹62.50 Lakh
New Bank (6.8%)
Principal + Switch Cost + Interest
Total: ₹55.30 Lakh

Savings: ₹7.20 Lakh → Transfer makes sense.

Pro Tip: Calculate remaining tenure and total cost before switching. Transfers generally make sense only with 5+ years remaining.

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