Home Loan 2025: Seven Myths Many Borrowers Still Believe

Housing loans have helped prospective homeowners in purchasing their dream homes. The home loan market in India is further expected to register a staggering CAGR of 22.5% over the next five years (2025-2030). In 2025 alone, the Reserve Bank of India (RBI) cut the repo rate thrice, while the central bank has chosen to keep the repo rate unchanged at 5.5% during the latest MPC meeting. All of these work in favour of borrowers seeking home loans, as they can enjoy lower interest rates, translating to lower EMIs.

However, despite the rising awareness and easy access to financial information, some borrowers remain sceptical of home loans, clinging to unfounded beliefs and myths. This can lead to making wrong financial decisions and missing lucrative opportunities. For example, some still believe opting for a home loan balance transfer isn’t beneficial, even though it has traditionally helped borrowers save lakhs of rupees while repaying loans.

Let us now look at seven such prevalent myths that borrowers continue to believe in concerning home loans in 2025.

Seven myths borrowers believe in 2025 about home loans

Myth #1: You can only apply for a loan if you have a perfect credit score

Some people believe that only those with a perfect credit score can apply for a home loan. For those unaware, a credit score is a 3-digit number, usually between 300 and 900, that displays the creditworthiness of an individual. A score above 750 is generally considered to be very good, and lenders often provide competitive loan terms to such applicants. However, even a score of around 650 makes you eligible to apply for a home loan, or even a home loan balance transfer. You may not enjoy the lowest interest rates, but it is indeed a myth that only those with a good-to-excellent credit score can apply for a home loan.

Myth #2: Fixed rates are always better than floating interest rates

While applying for a home loan, you can choose between fixed and floating interest rates. While most borrowers opt for fixed rates, it is primarily because fixed rates translate to predictable EMIs. It is a common myth among borrowers that fixed rates are better than floating rates. In reality, floating interest rates, especially in the current economic climate where the RBI is slashing the repo rate, may offer greater benefit to borrowers. It is always prudent to assess the market trends before choosing a particular rate.

Myth #3: You can only approach a bank for a home loan

When it comes to financing, the lending market in India has changed drastically over the last two decades. Today, you have public and private banks, non-banking financial institutions, fintech companies, and housing finance companies, among others, that offer loans at competitive rates. The prevailing myth of only approaching a public or private bank for a home loan is incorrect and quite archaic. In fact, NBFCs tend to offer better terms, especially for borrowers seeking a home loan balance transfer.

Additionally, the documents required for a home loan tend to be quite exhaustive for public banks, while NBFCs do not require extensive paperwork.

Myth #4: It is not possible to prepay home loans without incurring penalty charges

In the past, lenders used to levy penalty charges on prepayment of home loans. However, as per the latest RBI guidelines, lenders can no longer levy foreclosure or prepayment penalties on floating-rate loans taken by borrowers for non-business purposes.

Myth #5: Always opt for longer tenures as you pay lower EMIs

While availing of a home loan or opting for a home loan balance transfer, people often believe that conventional wisdom suggests they should choose a longer tenure. This allows them to pay lower EMIs, leaving room for other expenses and investments. However, they often overlook the fact that this results in a substantial interest outgo. While the EMIs decrease with an increase in tenure, it pads up the total interest component. Thus, higher EMIs may seem inconvenient, but they help clear the debt faster and save money in the long run.

Myth #6: You have to be a salaried employee to avail of a home loan

Another common myth pertaining to home loans is that only salaried employees can apply for a home loan. However, the reality is completely different. Lending institutions now have dedicated loan products for business owners and self-employed applicants. While the documentation and income proof requirements may be different, the application process remains the same.

Myth #7: The interest remains the same after loan approval

It is a common misconception among borrowers that after the loan approval or approval of the home loan balance transfer, the interest will not change. However, floating rates are linked to external benchmarks, and these can change over the course of the repayment period. This translates to higher or lower EMIs and total repayment amount.

Conclusion

Most individuals turn to home loans for financing the purchase of their dream home. However, they tend to believe in certain myths that can result in significant losses or missed opportunities. Whether you are applying for a home loan or opting for a home loan balance transfer, it is essential that you do thorough research and lean on facts.

This will also significantly simplify the loan application process. For instance, the documents required for a home loan by an NBFC may not be as extensive or painstaking as those required by a public bank. Being aware of these facts will help borrowers make informed home financing decisions. It is crucial for individuals to stay informed in today’s dynamic lending environment, as selecting the right lender and home loan terms can make all the difference.