As the Indian real estate market continues its expansive prowess, homeowners continue to hunt for innovative financing solutions to meet their housing aspirations. One option that's gained popularity over the past few years is the home loan overdraft facility. This unique feature allows home loan borrowers to easily access surplus funds when necessary. Understanding the nuances, benefits, and downsides of this tool can help you make an informed decision while choosing a home loan.
The home loan overdraft facility is a unique artifact in the pyramid of housing finance. It allows you to channel any surplus funds, over and above your regular EMIs, into your loan account. These funds stay here and are readily available for withdrawals as and when required. Usually, this borrowing facility is linked to a Savings Account or a Current Account. Remember that the overdraft limit against your property and the associated terms and conditions could vary across different lenders.
Choosing this facility can unlock a host of benefits for a home loan borrower. Your home loan account is linked with your savings or current account, so each payment you make goes into your home loan account. Plus, any amount exceeding the EMI acts as an overpayment, which helps lower your outstanding principal.
The key USP of this facility is that you can transfer funds from your savings account to your home loan overdraft account instantly. Remember that you'll have to repay this sum along with interest, if applicable, as it technically increases your home loan principal.
The following factors have contributed to this option’s popularity among home loan borrowers –
High Loan Overdraft Limit:
Although it varies from bank to bank, the overdraft limit is quite substantial. This gives you the freedom to withdraw funds whenever the need arises, making it easier to manage your personal finances.
Higher Overdraft Tenure:
Overdraft facilities provide the flexibility of choosing a high borrowing tenure. This ensures that loan repayment doesn't burden your finances.
Reduced Overall Costs:
Leveraging the overdraft facility can effectively lower your borrowing costs. Regular payments in the overdraft account help to reduce both the home loan principal and interest expenses.
Interest Levied Only on Utilized Amount:
Unlike traditional loans, where you have to pay interest on the entire amount, an overdraft home loan charges interest only on the utilized portion, making it cost-effective.
No Prepayment Charges:
You can make full or partial prepayments on your home loan overdraft without any additional charges.
Before you choose the home loan overdraft facility as your borrowing solution, remember that it comes with its share of drawbacks –
For Specific Borrowers Only:
If you have unstable finances or face difficulties in saving money, the overdraft facility might not be your best bet. Repaying the entire borrowed amount as one lump sum can be challenging for some.
Higher Interest Rate:
Flexibility often comes at a cost. Overdraft home loans generally have higher interest rates compared to traditional home loans. This makes quick repayments crucial to save on interest costs.
No Tax Benefits:
Utilising the overdraft facility doesn't grant you tax benefits for making additional home loan payments under section 80C of the Income Tax Act, 1961.
Meet Mr. Sharma – he took a home loan of ₹80 Lakhs in January, with a tenure of 20 years and at 8.6% interest rate. This brings his monthly EMI to ₹70,000. Confused? You can check the calculation for yourself here. At some point of time, Mr. Sharma finds that he has a surplus of ₹4 Lakhs that he decides to use to make a partial payment after 24 EMIs.
Now, with an ordinary home loan, this wouldn't alter his EMIs or principal-interest ratio. However, with the home loan overdraft facility, this payment to the loan-linked overdraft account brings down his monthly EMIs to ₹66,000 and effectively reduces the overall tenure as well. The trick lies in the fact that interest is calculated on the outstanding principal only, allowing you to significantly save as you pour money into your overdraft account.
While individual circumstances vary, here are some borrower profiles who could benefit from the home loan overdraft facility –
Homebuyers with Emergency Fund Requirements:
Those who seek liquidity or maintain an emergency fund can use the overdraft facility to access funds for unforeseen expenses without taking out separate personal loans.
Individuals with Multiple Financial Goals:
If you're juggling various financial objectives, such as home renovations, education expenses, or debt consolidation, the overdraft facility's flexibility lets you withdraw funds as needed, sparing you from additional loans.
Professionals with Variable Incomes:
Individuals with fluctuating incomes, such as freelancers, self-employed individuals, business owners, etc. can efficiently manage their cash flow by adjusting EMIs based on income fluctuations.
The home loan overdraft facility is a tool with immense potential; but, like any financial instrument, it's essential to assess its suitability as per your unique circumstances before signing on the dotted line. If you are searching for a home loan with a flexible repayment tenure, competitive interest rates, and high loan amount, look no further than the Home Loan options available on Bajaj Markets. Getting the keys to your dream house is more accessible than ever, only with Bajaj Markets