Home loans


Bank account linked home loans, an innovative product offered by lenders, allows you to save money on your interest outgo as well as time, by enabling you to repay your loan faster than the projected tenure. A look at this ‘Loan with a difference’ is given in the ensuing paragraphs.

There is no disputing the fact, that buying a home is, by far, one of the biggest investments that are made. With Real estate prices quickly climbing and interest rates on housing loans going up every now and then, this ‘big investment’ is simply getting bigger by the day! More over considering the long tenure and a mounting interest rate might give the jitters as was the case with a professional with an investment bank. He was disinclined to take a loan because of the long tenure associated with it. At the same time, going in for a shorter tenure meant coughing up a higher EMI on the loan, which he was not comfortable with either. His dilemma was finally put to rest when the he came across a home loan product linked to a bank account, in which he could not only save on interest costs but also settle his loan sooner than a regular home loan.

Saves Time and Money on your loan

Under this scheme, you need to open a current account with the bank from whom you avail of the home loan and the Equated Monthly Installments (EMI) on the loan will be debited from this account every month. The balance amount, after accounting for the EMI, is adjusted against the outstanding principal loan amount every month and interest is charged only on the reduced sum, thus bringing down the interest cost. This savings in interest every month goes towards principal repayment on the loan. Therefore, the principal amount on your loan gets reduced as and when surplus funds are deposited in the bank account, which in turn shortens the loan period as well.

Interest calculation on this ‘Flexible’ home loan

On a ‘bank account linked home loan interest is calculated at daily , i.e. on the daily reducing balance method. The interest is calculated on a daily basis, on the loan outstanding minus the excess amount in your account, thus, reducing your interest costs. For instance, if your loan outstanding is Rs 10 lakh and you have a credit balance of Rs 10,000 in your account after deducting the EMI, interest will be calculated on Rs 10 lakh minus Rs 10,000.

The biggest advantage of this scheme is that even if you a substantial balance in your account only for a day, it can bring down your interest expense greatly since the daily reducing method is adopted.

The loaned person is entitled to all the other benefits of a regular account.

This account can be operated just like a regular bank account and make deposits and withdrawals as per convenience. Many banks do not even require the account holder to maintain a minimum balance in this account. Also, all the others features of a savings account like check book, debit card, internet banking etc. will be available to the holder.

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