Simplifying home loan overdrafts for Indian homebuyers
Navigating the world of home loans can be daunting for many homebuyers in India. Among the various options available, the home loan overdraft facility stands out as a flexible solution that can save money and reduce loan tenure. This article aims to demystify this option, making it easier for you to understand how it works and how it can benefit you.
Understanding home loan overdraft
A home loan overdraft facility permits borrowers to deposit extra funds into their loan account. This action temporarily reduces the outstanding principal amount. It leads to lower interest charges, as interest is computed on the diminished principal. A distinctive aspect of this facility is its flexibility. It allows you to withdraw the surplus funds at your convenience whenever necessary.
How it benefits you
By parking additional funds in your home loan account, you effectively reduce the interest component of your EMI (Equated Monthly Installment). For instance, if your outstanding loan amount is ₹10 lakhs at an interest rate of 8%, and you deposit an extra ₹1 lakh into your overdraft account, you will be charged interest on only ₹9 lakhs until you withdraw the surplus.
Eligibility and costs
Not every homebuyer or every home loan is eligible for an overdraft facility. Typically, banks extend this feature to salaried individuals who demonstrate a stable income and possess a solid credit history. Moreover, opting for this facility may incur additional charges. These can include higher interest rates when compared to standard home loans, and specific processing fees.
Managing your overdraft effectively
To maximize benefits from your home loan overdraft facility, having a strategic approach is essential. It's advisable to deposit bonuses or extra savings regularly, which can significantly reduce the interest payment over time. On the other hand, making frequent withdrawals may counteract these advantages. Thus, careful planning and maintaining discipline in managing deposits and withdrawals are crucial for optimal results.
