All About Intelligent ways to schedule interest rates for home loans
After an unexpected change in monetary policy by the RBI, expectations of a reduction in interest rates, especially on home loans, have collapsed. For a while now, home loan borrowers paying high EMIs were looking forward to some relief, but RBI does not seem to make any more adjustments in the run to decrease inflation. Borrowers have to choose other ways of getting out of the situation.
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Generally, very little has been done on the part of the borrower to pay a portion of the debt to reduce the interest burden. One of the ways to decrease the tenure and, thus, the total interest charged is to raise the EMI. Some experts think that home loan seekers and borrowers considering switching lenders might consider messing with some of the usual schemes provided by different lenders. HSBC and SBI are such loans that are paired with an overdraft facility. Effective schemes provided by banks can prove to be very beneficial, but before heading up, the borrower needs to consider his requirements carefully.
The characteristics of these products differ with each bank, unlike traditional home loans that are common offerings. Among the lenders, the common thing that occurs is the overdraft facility. Any surplus money you deposit into consideration other than EMI will decrease the principal outstanding, thereby reducing the production of your interest.
If necessary, you may also withdraw the additional amount deposited in the account, but per withdrawal, you will have to pay the relevant transaction charges. This is based upon the policy of the bank.
The amount deposited into the account decreases the interest payable for that number of days and thereby decreases the length of the loan and the interest repaid during the loan. As interest saved is not taxable, though income is tax-payable, this also helps save tax. Interest over the amount invested is taxable as fixed deposits. If used intelligently, it will reduce the tenure of both your loan and the interest charged.
It should be remembered that, while it might sound beneficial, they charge at least 0.25 percent more than a normal home loan. You should conduct a cost-benefit analysis to decide if a simple part of pre-payment is easier than placing surpluses, according to VN Kulkarni, the chief counselor. Opting for banks that charge an interest rate as low as 9.5 percent might be a wise move.
So it can be inferred that if you funnel all your investments into this account and are assured of the parking surplus, you will be in benefit.
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