What is Home Saver Loan
Naveen, 42 years old, has already booked a flat. Now he’s looking for the best home loans deals. Home Saver Loan was recommended to him by his friends. Naveen now faces a dilemma similar to many house/flat buyers. He is unsure whether he should choose a home saver or whether to prepay the loan and save interest or save money for a rainy day. He is tempted to prepay at most a portion of the principal. His concern is about liquidity if any unexpected circumstances arise soon after deploying his funds. The borrower may not be able to make the right decision.
Banks offer a home saver loan product for those who want to have both the cake and eat it too. The basic housing loan product allows a loan to be fully disbursed once the loan limit is exhausted. There are no other withdrawals or debits allowed to the account. Even if you pay more than the required repayments, i.e., if you have excess cash and want to repay a portion of the loan, you can no longer withdraw or debit. Let’s say you have a loan amounting to 25 lakh with an EMI of 24000. The outstanding amount is 24,000. The loan will have a new outstanding of 19,00,000 if you deposit 5 lakh. Friends, you can’t withdraw excess money from your basic home loan to pay for an emergency. This means that reducing the outstanding loan account will reduce personal liquidity, which would have otherwise been available.
Home saver is an innovative product
Home saver is an innovative product that customers can use to get a better return on their savings and reduce the interest rate burden on their home loans. The borrower can deposit any excess savings into a current account linked to his home loan account. The bank subtracts the outstanding principal from the balance of the current account when calculating the interest component. This is typically the average monthly balance of the account. In an emergency, you can withdraw the money quickly. There is one drawback to home saver loans. Some banks charge 0.25-0.50% higher interest rates than regular home loans. This loan can be used as an overdraft and allows for greater flexibility in operating the home loan account, such as a savings account or current account. This bank offers internet banking and cheque book to borrowers. Some banks require that the borrower give instructions for withdrawing excess funds from the housing loan account.
Top players such as the State Bank of India, Union Bank of India, Smart Save, IDBI Bank, Citibank and Punjab National Bank (PNB Flexible Home Loan), Standard Chartered Bank, and HSBC offer this facility.
Everyone can benefit from a home savings loan.
People can save this money in the linked current account to receive dual benefits. A contingency fund can range from 3-10 lakhs for households with dependent parents. This corpus also includes medical contingencies. You can park this corpus in a current account and link it to a home savings loan account. The savings is substantial
What are the benefits
The linked current account helps you reduce your interest costs while still being easily accessible and is protected from the taxman. The bank doesn’t impose a prepayment penalty even though the balance is considered part payment. You can still avail of this product even if you don’t expect a huge windfall by Simply depositing a portion of your salary into your current account as a recurring sum. Let’s say you have a home loan with a monthly payment of 40 million and have paid 10,000. You decide to buy a car on Diwali and take out a loan from the bank. A car loan comes with a higher interest rate. You can instead use the home savings loan excess amount to purchase the car. You can use this extra money to pay for the higher education or marriage costs of your children.
What are the Limitations of this?
Home saver loans are, as we have already mentioned, more expensive than a regular home loan. The second reason is that the current account deposit doesn’t earn any interest income. You’d get much better returns if you invested this money in equity or mutual funds. For people who are concerned about liquidity, this option works well.
The rule of thumb for any financial product is to shop around carefully to find the best deal. Interest rates vary from one bank to the next. Be aware, however, that eligibility criteria can vary. Before rushing to purchase this product, a borrower should take the time to learn the details of home saver loans if you have a regular home loan for 25 lakh with regular EMI and have 5 lakh as extra cash. You can prepay your regular home loan but cannot withdraw the excess amount later. The temptation to spend the money on unnecessary things will always be looming high!
