Friday, October 28, 2016
Thursday, October 27, 2016
Home Loan with Overdraft Facility can potentially reduce interest burden
There are more than a few options when it comes to choosing the home loan most excellent suitable to you. Several Indian banks are now offering pioneering schemes that are commendable of deliberation. One of the newer schemes accessible is home loans with an overdraft facility.
What is unlike about this home loan?
This type of loan involves depositing an extra amount in the loan account at the end of the month, after paying the monthly EMI. This surplus amount is applied towards reducing the unique principal (actual loan amount taken). Once the principal is reduced, the interest payment likewise reduces.
Can I take out from this extra sum if essential?
Yes, the customer has the alternative of liquidity in case he/she needs the funds. In reality, this type of loan account works fine when it is used for usual banking transactions.
What are the advantages of an overdraft facility on a home loan?
One, the interest load is lower than usual home loan as the extra funds are used towards reducing the principal. Future interest payments are made on a progressively falling principal amount.
Two, it is additional tax-efficient since the interest saves is not chargeable. If you invested those same excess funds in a fixed deposit, for instance, you would have to reimburse tax on the interest earned.
Three, the greater the excess funds in the account, the earlier the principal and interest get repaid, thus reducing the overall tenure of the loan.
What are the disadvantages of the overdraft facility?
The chief disadvantage is the higher interest rate on these loans. It can be up to 25 basis points higher than a normal home loan. The customer wants to stability the higher interest rate against investments from outlook reductions in interest payment.
Two, the client wants to keep excess amounts that correspond to 2-3 EMIs for this kind of loan to be monetarily valuable. A lower excess sum will not guide to any important reduction in the principal or interest, while the interest rate of the loan remains higher than usual loans.
Third, this kind of scheme is feasible only if the home loan account is used frequently for banking transactions. Depositing a sheer amount every month into this account - still if it is not your main bank account - is also an option. This scheme is the majority feasible if it is your regular account for transactions.
How do I know if this plan is appropriate for me?
The overdraft facility on the home loan is preferably correct to twice income families or those with a fairly healthy monthly inflow. Such customers are almost certainly improved able to place away money after paying off the EMI every month. The savings in interest expenses can be fairly main depending on the excess funds retained in the account.
Even in such conditions, the consumer must decide whether it is improved to construct a deposit of the loan, as an option of using the overdraft facility.
Which banks offer such loans?
Numerous banks offer such schemes, including HSBC, StanChart, SBI and Central Bank of India. Finheal can help decide whether this type of overdraft facility is suitable to your particular financial situation.
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