Home Loan Overdraft Facility
Want To Own Your Home Faster And For Less? We Can Help!
Home loan is undeniably a long-term financial commitment that requires careful consideration before taking one as the EMIs on home loans are high. A lot of factors come into play towards the repayment of a home loan.
There are plenty of home loan options, catering to the type of customers. Home loan Overdraft facility is one of the most popular options in a home loan that is sought after by individuals who wish to pay off the home loan faster and less interest.
Let one of our home loan experts help you get a Home Loan Overdraft Facility with lowest rates, quick disbursement and hassle-free experience.
What is a home loan overdraft facility?
Overdraft is generally an extension of credit from the lending institutions wherein the borrower is allowed to deposit funds over the loan amount and make withdrawals as per requirement.
Home Loan Overdraft facility is much similar to that. The lender provides you with a savings or current account with an overdraft limit which is usually equal to the outstanding home loan amount. You can make the repayment of the loan by depositing money into the account. Any excess deposit is considered a prepayment which reduces the outstanding principal and the interest outgo on the loan.
With this home loan overdraft facility, not only will your interest payments and loan tenure reduce, you can also withdraw surplus amounts deposited in your home loan account, from your bank anytime you need it.
Home Loan Overdraft facility is a one stop solution for all your funding requirements. It is a multipurpose* long tenure facility which gives you quick access to funds to manage your planned and unplanned expenses.
How Does An Overdraft Facility In A Home Loan Work?
When you opt for home loan overdraft facility, your home loan account will be linked to your current or savings account. Any surplus amount deposited more than the EMI is considered prepayment towards the home loan. The excess amount cuts down your principal outstanding and thus reducing the interest payment on the home loan.
The more you deposit on the home loan account, the sooner you will be able to repay the home loan. You can directly transfer the funds from savings account to your home loan account.
As you are able to add extra amount to prepay the home loan, you are also allowed to withdraw money from your home loan account. Any amount withdrawn will have to be repaid with applicable interest.
The deposit and withdrawal cycle can be repeated any number of times during the loan tenure, thus giving you the flexibility to manage your cash flow and minimise your interest outgo.
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Advantages Of Home Loan Overdraft Facility
Overdraft facility is beneficial to borrowers who wish to repay their home loan much faster by cutting down on interest payment. Following are some of the advantages of opting for an overdraft facility in a home loan.
Parking Surplus Money: It would be advisable for people to start using this account for parking all their surplus wealth in this account. This will be beneficial in many ways as the money invested can grow and can be used later for many purposes as per their requirement. The money also helps reduce the burden of home loan repayment. It will decrease the principal amount on which the interest is charged and thus the overall interest amount would also decrease.
Withdrawal at Any Time: The amount deposited in the account can be withdrawn at any point in time. The money can be withdrawn for several reasons that include alternative investment options and unexpected expenses.
Lowers Interest on Home Loan: Interest saved is interest earned. The amount deposited in the account is deducted from the total loan amount. This reduces the amount of interest as the principal amount has now decreased. Thus, the account holder saves a lot of money.
Multi-Purpose Use: The account can be used for a variety of purposes using different instruments. It can be used to pay bills such as electricity, shopping, credit card payments, etc. Both cheque books and net banking facilities are also available, just as with regular savings or current account. This opens up new financing options for an individual.
Improved Credit: Reducing principal on your home loan faster can improve your credit score by improving your debt-to-income ratio.
More Liquidity: Paying off your home loan faster improves cash flow and reduces stress so you can enjoy your life more.
Who Can Opt For A Home Loan Overdraft Facility?
Home loan overdraft is a good option for individuals who have surplus money. If you have a double income in your family, you can opt for this facility as you can park the extra funds towards prepayments.
Businessmen who have surplus money can opt for this facility and enjoy the benefit. Moreover, they can withdraw money when needed for business purposes. Salaried individuals who would get a bonus or increment can opt for this option to pay off their home loans faster.
Difference between Regular Home Loan And Home Loan With overdraft:
Regular Home Loan | Home Loan With Overdraft |
The repayment made towards the home loan is permanently deducted by the lender. | The surplus amount parked can be withdrawn again for personal usage. |
The interest is calculated on the outstanding principal. | The interest is calculated on a daily basis based on the balance on the account. |
If you make a part-payment or prepayment on the home loan, it reduces the outstanding balance. | The prepayment increases the withdrawal balance and reduces the outstanding principal amount on the home loan. |
The loan account remains closed when the outstanding principal is completely paid off. It cannot be used again. | The overdraft account remains active when the outstanding balance reaches zero. The user can withdraw funds in the future and payback with applicable interest. |
It is best for people who can just pay the EMI without fail. | Best for individuals who can park extra funds in the account and repay the loan faster. |
The user can get tax rebate under Section 80C. | The borrower who has opted for this facility is not eligible for tax deduction on surplus amount under Section 80C of the Income Tax Act. |
Is home loan overdraft facility better than investing in fixed deposits?
Home loan overdraft facility can be compared to a fixed deposit account. A lot of people invest their money in fixed deposits because they get reasonable returns on their investment with no real risk to the principal invested.
In the case of a fixed deposit, people have to lock their money in for a period of 5 years in order to get tax deduction benefits. A better option, in this case, would be to park the surplus in an overdraft account. The money invested can be withdrawn at any time and the rate of interest is usually also higher by 1%-3%. This would make it a much better investment.
A fixed deposit is an obvious choice when you do not have a home loan with overdraft facility.
Is home loan overdraft facility better than a personal loan?
When an emergency strikes, most individuals would think of taking a personal loan which is easily available based on the credit profile. Though it is easily available, it can become a debt burden as the interest rates are higher. On the other hand, having a home loan with an overdraft account can be beneficial to you.
The interest rate on a personal loan range between 12% to 30% which is higher than all the other loans and interest is charged for the entire loan amount. But a home loan with an overdraft account comes with an interest rate that ranges between 6.75% to 9% which is way cheaper than a personal loan and interest charged is applicable only on the amount withdrawn.
A personal loan is an obvious choice when you do not have a home loan with overdraft facility.
Income tax exemption:
You don't get tax deduction benefit under section 80C on additional home loan principal repayment as the surplus amount deposited into the home loan account with home loan overdraft facility is not counted as principal repayment.
FAQ’s
What is an overdraft in a home loan?
The overdraft facility on a home loan allows a borrower to deposit additional funds in the home loan account. The additional funds are treated as a prepayment against the loan principal and can help in saving interest.
Will the Rate of Interest on the Home loan Overdraft be the same as home loan?
No, the interest rate will be 0.25% higher than your home loan.
How much loan amount is offered under Home Overdraft product?
Loan amount may vary depending the credit profile, net worth and income.
Can I take Home Overdraft facility for Loan against my property?
Yes. It is possible who wish to take a Loan Against Property, Top-up, Balance Transfer + Top-up.
How much loan amount is offered under Home Overdraft product?
The entire loan amount can be under the home loan Overdraft facility.
Which bank has a home loan overdraft facility?
In India, many major banks offer overdraft facilities against a home loan, such as SBI, BOB, HSBC etc.
Can we take an overdraft on a home loan?
Yes. The overdraft facility on a home loan is like an overdraft limit on the current account. The additional funds obtained from a home loan can be deposited in the home loan account. The surplus amount is considered as prepayment against the loan principal and can help in saving interest..
Is a home loan or home loan overdraft better?
A loan will come at an interest rate; however, an overdraft can be availed at the same interest rate as the home loan. It helps individuals who have varying income patterns who would like to reduce the interest burden as and when possible.
Will there be extra charge if I opt for Home loan Overdraft?
No, there is no extra charge if you opt for home loan overdraft facility but interest rate will be 0.25% higher than your home loan.
