Home Loan: Seven Myths Many Borrowers Still Believe In 2025

Despite growing awareness and easy access to financial information, several myths around home loans continue to mislead borrowers.  These misconceptions can influence major financial decisions and result in unnecessary costs or missed opportunities.

Here are some common home loan myths that many borrowers still believe to be true, even in the age of social media, where abundant information is available across multiple platforms.

Many still believe that only those with a credit score of 750 or above can qualify for a home loan. While a good credit score improves your chances, most lenders approve loans for scores above 650, albeit possibly at slightly higher interest rates. Many lenders offer loans to borrowers with stable income and healthy financial profiles, despite low credit scores.

Some borrowers assume fixed interest rates are always the safer choice. However, in a falling rate environment, floating rates can offer significant savings. It’s important to assess market trends and loan tenure before choosing.

This is a common misconception. Non-Banking Financial Companies (NBFCs) and housing finance companies also offer home loans with faster approvals, flexible terms, competitive interest rates, customised loan options and better customer service. This makes these financial service providers a strong alternative to traditional banks.

This is no longer true for floating-rate loans. As per RBI guidelines, banks cannot levy prepayment or foreclosure charges on floating-rate home loans taken by individuals for non-business purposes.

A longer tenure reduces your monthly EMI but increases the total interest outgo significantly. A shorter tenure, which may seem financially burdening initially, helps clear the debt faster and saves money in the long run.

Self-employed professionals and business owners often assume they aren’t eligible. In fact, banks and NBFCs have dedicated loan products for self-employed applicants, though documentation and income proof requirements may differ.

Interest rates on floating home loans are linked to external benchmarks like the RBI repo rate. This means they can fluctuate over the loan tenure, affecting your EMI or total loan cost.

Being aware of these myths can help borrowers make more cost-effective home financing decisions. In today’s dynamic lending environment, staying informed is just as important as choosing the right lender and home loan offer.