All about interest saving home loan scheme
To be entitled to the benefits of this home loan product, you need to open and link a savings or a current account with your home loan account with the same bank. Any surplus amount deposited in this linked account is deducted from the home loan principal and interest is calculated on the outstanding home loan which then reduces and saves interest cost. Generally, average monthly balance maintained in the account is accounted for the purpose.
For instance: In case you have taken a home loan of Rs. 30 lakhs and deposited your excess savings of Rs. 5 lakhs in the linked savings or current bank account, your interest liability will be reduced as now the interest will be calculated on the outstanding principal amount of Rs. 25 lakhs.
At present only some select banks in India, including SBI, IDBI Bank, Standard Chartered Bank, Citibank and HSBC are offering the product. However, interest rate on these home saver loans is usually higher by 0.5%-1.00% in comparison to other home loan products. Note: Withdrawals from the savings or current bank account tied to the home loan account is allowed in case of need. To know about SBI's interest saving home loan scheme click here.
This home loan product should only be opted in case you have surplus funds or are sure of accumulating excess funds over time for the purpose which then can be parked in the bank account linked to your home loan account else you would have to pay a higher sum towards repayment of the loan as interest on this product is higher.
Though, this loan product helps one save interest cost, other fees and penalties should also be accounted for to compute the overall savings from the product. Few banks on this home loan product charge an annual fee @1% on outstanding loan which can turn out to be hefty.
Experts suggest that the product holds good for borrowers with large bank balance or business community who have the capacity to maintain surplus funds in current or savings bank account.
So, decision in respect of the choice of interest saving home loan product should be made considering all such factors.