If you are a Home loan borrower or planning to take one then this article may be a great help for you. Buying a house is a dream of lakhs of people in our country and to fulfill this dream people land up taking Home Loan. Bank make an EMI of your loan that you as borrower have to pay till the amount i.e principal + Interest exhaust. After paying EMI of loan and fulfilling the daily needs of family members, you must not get to save substantial amount out of your salary.
In such situation ‘What if you get a lump sum amount like Bonus?’ The very first thing that will come to your mind is to make part payment i.e pre payment of your home loan to reduce the EMI burden. Most of us will think the same but here you should also remember the importance of emergency fund. Emergency fund as name suggest is a fund that every individual should maintain to meet your emergency need. In short you should have some liquidity so that you don’t have to beg in case of some emergency. So taking all this in consideration banks introduced “Home Saver Loan” for home loan customers.
What Is Home Saver Loan?
Home Saver Loan is a scheme offered by some banks in which borrower can link his current/ saving account to his loan account. The amount deposited by the borrower in this account will be considered as principal repaid and get deducted from the loan principal amount while calculating interest on loan hence the interest payable will reduce. In simple words, bank will deduct the amount deposited in your saving/ current account out of the outstanding principal amount while calculating EMI. But in real terms that money will remain in your account and you can withdraw that amount anytime as per your wish.
To make it understand better lets take a simple example:-
Mohit took a loan of Rs 30 lakhs from a bank at 11% for 20 years. Banks make a EMI of Rs 13,875 which is to paid by Mohit every month. Mohit get Rs 8 lakhs as his share of property from his father. So using Home Saver Loan facility, Mohit deposited this amount in his saving bank account to reduce his loan liability as well as to maintain liquidity. Keeping Rs 8 lakh in his current account reduced his loan liability, as bank calculated his new EMI by reducing Rs 8 lakh out of his total principal loan amount. On the other hand, he will be free to take out that money anytime as per his need and bank will calculate the next EMI depending upon the account balance of his current account.
How Home Saver Loan Works?
*The interest rate charged in Home Saver Loan scheme are little higher than normal home loan interest rate.
So the above example clearly indicates using Home Saver Loan, Mohit saved Rs 7444 in spite of higher rate of interest in Home Saver Loan. So you will get respective benefit in each EMI till you maintain balance in your current/ Saving bank account. This will help you save more in later stages of loan repayment. As with every payment of EMI your principal amount will reduce.
Advantages Of Home Saver Loan
- Home Saver Loan helps borrower pay off his Home Loan in less Time, less cost.
- Helps maintain liquidity and reduce loan liability.
- Borrower can withdraw his money anytime anywhere using his ATM-cum-Debit card.
- Bank calculates EMI after deducting the average monthly balance in the current account of the borrower. Like if your loan amount is Rs 20 lakh and you have a balance of Rs 3 lakh at the end of the month in your current account, the interest is calculated on Rs 17 lakh.
- The home saver loan scheme is offered by Citibank, HSBC, ICICI Bank, IDBI, SBI and Standard Chartered Bank in India.
Drawbacks Of Home Saver Loan
- Interest loss in case of keeping this money in current account + charge to maintain current account will also be levied on the borrower.
- Keeping money in saving account will not give as good returns as invested the same in mutual fund scheme can give.
- The rate of interest charged on Home Saver Loan are 0.5% to 1% higher than normal home loan.
So finally we can see only few banks offer home saver loan scheme where borrower can park funds. But it is only beneficial for the borrowers who have substantial amount to park in current account linked with your loan account. Substantial amount means any amount which is equal to or more than 10% of the loan amount.