The current pandemic situation has brought numerous people under financial burden, and hence they are not capable enough to repay the EMIs, loans, and other repayments. The current generation still lacks emergency funds, and hence they are not in a state to make regular repayments even during a financial crisis.
For such buyers/consumers, banks offer a Home Saver loan that helps them beat the ongoing monetary troubles and handle contingencies.
Under a 'Home Saver' loan, the borrower can pay more than fixed EMIs whenever (s)he has a surplus amount with them. Well, that seems a normal feature that every bank provides you.
What's interesting here is that you can take out the amount from surplus funds in case of an emergency. The benefit of a home saver loan is minimizing your principal amount that will directly take down the interest.
Let's take an example.
Rohit has a savings bank account attached with a home save account. He has kept 10 lakh in the savings account and left it. The interest payable will not be calculated on the outstanding loan. Instead, it will be calculated on the outstanding loan minus 10 lakh (available in home saver linked account). This way, Rohit has the option to lessen his interest rate without affecting his emergency funds.
It is a fantastic option for anyone who owns additional funds and uses it simultaneously for more than one purpose.
There are multiple benefits of opting for a home saver loan. Below are some of them:
Simple Interest Calculation: Under home saver loans, some banks calculate interest daily, which is far better than the conventional method of home loans.
Quick Access to Funds: In today's era, managing an emergency fund is essential, and hence you should always prepare one for adverse situations in the future. Holding a surplus amount in the home saver account helps you use it to reduce interest rates as well as an emergency fund.
Home Loan with Top-up: You have already converted your home loan into EMIs. With a home saver loan, you can top-up your existing home loan and reduce the interest rates.
Tax Benefits: With a home loan, you can get tax benefits under 80C of the Income Tax Act 1961.
So, these are the traits of a Home Saver loan that you shouldn't miss. Now, the interesting question is, who can make the most out of it?
The one-liner answer to this query is 'ALL.' Yes! A home saver is a good option to opt for anyone willing to lessen their home loan tenure and minimize the tax amount.
Today, everyone is smart enough, preparing the surplus amount for nearly six months' expenses. These expenses are required in case you undergo a financial crisis or a situation like COVID-19.
So, based on your monthly expenses and income, your emergency fund can vary from 1 lakh to 10 lakh (the actual amount can vary). You find a way to secure the emergency fund to be used in case of financial issues. Interestingly, you can opt for a home saver loan account where you can put your surplus amount.
Interestingly, the amount is available for use if you undergo a bad time and need emergency funds.
Now, most of the articles will only cover the positive aspect of the Home Saver loan. However, it is essential to consider the negative aspects as well! So, below are some demerits of a home saver loan.
High-Interest Rate: A home saver loan comes with a higher interest rate than a standard home loan. It means you are ultimately paying higher than the regular home loan EMIs.
No Returns on Surplus Amount: In case you opt for the home saver loan and put your emergency funds in the home saver account, you won't get any satisfactory interest rate on the funds. In short, it isn't going to be your income source. Instead, the value of your funds will degrade with inflation.
So, you should always make your selection wisely.
The prime reason behind taking a home saver loan is reducing EMI tenure. However, when you are not getting enough income from the additional funds, you should find some great alternatives that can help you save your EMI; instead of rusting your money in a home-saver loan account.
Below are some great options you can consider to lower your EMIs and save on home loan interest rates.
Check & Change Interest Rate Regime: Your loan starts at a specific loan amount and a specific interest rate. If you are running a home loan on a floating interest rate, the rates fluctuate based on the RBI guidelines and decrease/increase in repo rate. However, there are times when banks change their benchmark interest rate and continue applying the corrections as per RBI.
So, you should take advantage of such a change in the interest rate regime and apply for an interest rate decrease. E.g., you took home in 2017 when the home loan starts at 8.5%; all fluctuations (by RBI) will apply on your 8.5%. However, after COVID-19, banks have changed their base interest rates to 6.7%. However, you are still paying ~8.5% interest rate. Hence you should apply for the change in the interest rate and take benefit of low-interest rates.
Find a New Lender: Home loans are nowadays offered by numerous banks and NBFCs. Hence, there is huge competition in the banking sector to provide affordable housing loans at lower interest rates. You can take advantage of this competition and find a lender that can assure you lower interest rates (than your current interest rate).
Remember, with a small decline in interest rate, you can visualize a big change in the EMIs. A lower interest rate helps you minimize the EMI price or loan tenure.
Turn your Fixed Rate to Floating Rate: Housing loans are available with two interest rate options, i.e., Fixed-rate and Floating rate. Under fixed rate, your interest rate always remains fixed regardless of market fluctuation or change in RBI repo rates. With a fixed interest rate, you are liable to pay a fixed EMI for a fixed tenure (no more, no less).
However, in floating rate, your interest rate changes with the change in market and RBI guidelines. This has a strong impact on your EMI tenure. If the interest rate increases, your EMI tenure/cost will increase or vice-versa. Hence, you should apply for a floating interest rate that helps you lower your EMI.
|
Saving by moving from fixed to floating rate |
||
|
Outstanding Loan |
Rs 30 lakh |
Rs 30 lakh |
|
Remaining Tenure |
10 years |
10 years |
|
Interest rate |
10.50% |
7.50% |
|
EMI |
40480 |
35611 |
|
Total Interest Payable |
Rs 18.58 lakh |
Rs 12.73 lakh |
Plan for Partial Prepayment: Almost all banks provide you options to pay an additional amount to your home loan account partially. If you ever get some surplus amount, you should pay partial repayment that helps lower the principal amount and hence minimize the interest rate.
The flexibility of partial prepayment differs from one bank to another. Hence, you should check the availability of options and now of prepayments that are done within a year.
Also Read- All that You Need to Know About Transferring Your Home Loan Outstanding
Extend Your Payment Tenure:: Paying your EMIs regularly is a good practice. However, this doesn't mean you have to continue with the same EMI, even if you are struggling with a financial problem. If you are undergoing financial stress and are not in a state to pay the EMIs regularly, you can prefer to extend your EMI tenure. Extension of EMI tenure helps you lower the EMI and minimize your financial burden to some extent.
|
Reducing EMI by extending the remaining tenure |
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|
Tenure Extension |
Old EMI (Rs) |
New EMI (Rs) |
Reduction (Rs) |
|
10 years to 15 years |
47481 |
37080 |
10401 |
|
10 years to 20 years |
47481 |
32224 |
15257 |
|
15 years to 20 years |
37080 |
32224 |
4856 |
|
15 years to 25 years |
37080 |
29560 |
7520 |
|
20 years to 25 years |
32224 |
29560 |
2664 |
|
20 years to 30 years |
32224 |
27969 |
4255 |
|
For a home loan outstanding of Rs 40 lakh at 7.5% |
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Here you should consider two important points.
These points will definitely help you lower your EMI or loan tenure significantly. Hence, you should always pay keen attention to the market and keep in mind the ongoing changes in the banking section.
This will help you take benefit of the ongoing interest rate regime or new RBI guidelines that can help you lower the interest amount.
Above all, you have earned sound knowledge about a home saver loan. It entirely depends upon you whether you want to opt for a home saver loan or not (based on the entire information provided above).