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Home Loan Overdraft

Home Loan Overdraft Facility

Last Updated 04th Dec 2021

  • The overdraft facility on home loan allows you to deposit additional funds in your home loan account.
  • The additional fund is treated as a prepayment against the principal amount.
  • The home loan overdraft interest rate is higher than other loan schemes.
  • A home loan overdraft facility cannot avail of tax benefits under Section 80C.

If you plan to take a home loan and are confident of generating surplus funds regularly after paying the EMIs, you can opt for loan schemes with an overdraft facility. This will not only cut interest payments significantly but will also reduce the loan tenure.

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What Is A Home Loan Overdraft?

Under this scheme, you can deposit surplus funds into your home loan account, which will be considered a prepayment against the principal. If you have been making regular deposits to the account, your outstanding principal would proportionally reduce. The interest is calculated on the outstanding principal, minus the savings deposited in the home loan account, over and above the EMI. Moreover, you also have the option to withdraw this money as and when required.

Advantages Of A Home Loan Overdraft Facility

Home loan overdraft is a good option for double-income families with surplus income or businessmen who get regular surplus funds. The biggest advantage of this scheme is the liquidity it offers. The surplus amount in the home loan overdraft account is available for withdrawal any time, and you also have the same flexibility of repayment when you get funds. Even if you are already servicing a regular home loan, you could look at switching to banks that offer overdraft-linked home loan schemes.

Here are the main advantages of an OD facility :

  • Offers greater liquidity on the deposited amount
  • Facility to withdraw surplus money anytime
  • No penalty for prepayment of the loan amount
  • Reduces interest liability when extra funds are deposited

Who Should Not Opt For An Overdraft?

If you are not able to generate a regular surplus amount, a normal home loan is sufficient. However, home loan overdrafts are 25 basis points more expensive than a regular home loan. Also, the overdraft housing loan facility may not work in your favour if you don’t use the OD account for regular transactions. Therefore, you should ensure that your routine banking transactions are carried out via this account. So, before proceeding, you must ascertain whether your budget allows you to take advantage of the home loan OD in the long run. The surplus amount deposited here does not qualify for Section 80C rebate, as it is not treated as prepayment. So it is advised to park only the amount over and above the tax-deductible interest portion. Interest saved is not deductible under Section 24 and is shown as an available balance.

Popular Home Loan Overdraft Schemes

Many banks offer OD facilities on home loan to save interest. Some of the popular home loan overdraft schemes are :

  • State Bank of India – SBI MaxGain (SBI OD Home Loan)
  • Axis Bank – Super Saver Home Loans
  • Citibank – Home Credit
  • Bank of India – BOI Star Smart Home Loan
  • Standard Chartered Bank – Home Saver

Difference Between Regular House Loan And Home Loan Overdraft

Regular Home Loan Home Loan Overdraft
Interest is calculated on the outstanding principal of the loan amount. Interest is calculated on the book balance (principal outstanding) daily and is debited at the end of the month. Excess amount from the monthly payment is considered as an available balance.
The surplus amount used for repayment is permanently deducted from your account. You can withdraw surplus funds any time.
Pre-payment reduces outstanding principal balance. Pre-payment increases your available balance and reduces your book balance.
A home loan is considered closed when the outstanding amount is zero. The book balance reaches zero when the entire amount is paid off. You can still withdraw from your home loan OD account or visit a bank to close your account.
Suitable for those who can manage EMI better. Suitable for those who have surplus amounts as regular income.

Home loan overdraft is a good option for people who have a regular surplus income. If used judiciously and in a planned manner, it can significantly reduce your total interest outgo. However, not all banks offer this facility. The ones currently offering this scheme include State Bank of India, Citibank, PNB, Standard Chartered Bank, Axis Bank and IDFC Bank.

FAQs

How much home loan amount is offered under home loan overdraft facility by SBI?

SBI offers the best overdraft facility on home loan for a minimum of ₹ 30 Lakh and a maximum of ₹ 75 Lakh if a person chooses to borrow money under SBI overdraft home loan i.e. SBI Maxgain home loan.

Is there any fee for renewal of home loan overdraft facility?

The renewal fee may vary across all banks, and may or may not be charged. For instance, Yes Bank charge a renewal fee, if you want to renew the overdraft home loan.

Can I avail loan overdraft against loan against property?

Yes, overdraft facilities can be availed for a loan against property. This facility can also be availed for other products like Top-Up or Balance Transfer top-up.

What is the interest rate of home loan overdraft scheme in Standard Chartered Bank?

Standard Chartered Bank offers home loan overdraft at an interest rate of 7.49%. The bank also provides a debit card and allows you to withdraw money whenever needed.

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