What do you think about buying a home
in India? Pretty cool is n't it? Buying home is one of the important
thing for most of the middle class today. Whenever I talk to friends of my
close circle, the first and foremost question that I get from them is about buying home, affordability
and various types of loans available.
So I want to share some new types of loans available in india which would be useful to lot of readers of this blog. Lets get started.
Normal Home Loans
X has availed a CONVENTIONAL home loan amounting to Rs. 20 lakhs at 10 per cent interest for 20 Years and EMI payable is Rs. 19,301.
He would complete his EMI payment at the end of 20th year.
But if X take offset loan he/she could pretty much payoff his loan in his 15th year and can save lot of money. Read below.
Offset Loans
X has availed
a ‘OFFSET’ home loan amounting to Rs. 20 lakhs at 10 per cent interest and EMI
payable is Rs. 19,301.
In the first
month, the interest works out to Rs. 16,667 and principal recovery would be Rs.
2,634.
X has
deposited and withdrawn the following amounts in his ‘OFFSET’ account, as
follows:
* On first of
the month, X deposited his salary amounting to Rs. 55,000.
* On 5th, he
withdrew Rs. 10,000 and balance reduced to Rs. 45,000
* On 15th, he
withdrew Rs. 10,000 and balance reduced to Rs. 35,000
* 0n 25th he
withdrew Rs. 5,000 and balance reduced to Rs. 30,000
* On 30th, his
account was debited for Rs. 19,301 towards the EMI
The average
balance for the month can be calculated as
Rs. 55,000 x 5
+ 45,000 x10 + 35,000 x 10 days + 30,000 x 5 / 30 days = Rs. 40,833.
On the average
balance of Rs. 40,833, the interest @ 10 per cent works out to Rs. 340 per
month.
This amount
would be reduced from the outstanding loan.
The interest
thus earned every month on the bank balance will help X to pre-pay the loan
much earlier, resulting in substantial savings in the interest charged on the
home loan.
X can always
withdraw extra amount (other than EMI payable) and also benefit from higher
interest accrued on the period of savings i.e. 10%, which is the interest
charged on his home loan.
Suppose X has
plans to go for an RD (Recurring Deposit) of Rs. 3,000 per month, he can save
the same in the offset loan account itself, which would reduce the tenure from
240 to 165 months, making interest savings of almost Rs. 9.35 lacs, as compared
to normal home loan.
Bottom line is
through offset loan one can prepay the loan before end of his tenure and can
save tons and tons of interest.
Right now SBI, ICICI, HSBC and citi banks are offering offset loans under different names.
Here is the citi
bank home credit calculator for you.
