Home Loan Option
Shubham always dreamt of having a home for his small family of four. He wanted to have a neat and well planned home where his two kids could play all day long. In order to make this dream come true, he chose the option of smart home loans which are good in their own way. After researching hard on various aspects such as locality, cost of house, processing charges and interest rates, he finally applied for the smart home loan. Paying EMIs is the most painful part of a home loan, but when you think of the rising interest rate, then everything seems to be going in the wrong direction. For making the life of the consumer easier, government and banking institutions often come up with smart ideas and loans that are affordable as well as convenient.
What are Smart Home Loans and How do They Help You?
In smart house loans, your savings or current account at the bank is linked to your home loan which has been offered by the same bank. In such an account, you can easily deposit some surplus funds at anytime. The bank then deducts this amount from your loan’s principal amount when they are calculating the amount of interest on your remaining loan. Smart home loans basically help you in two ways. They not only help you in reducing the amount of interest and EMIs but even bring down the loan tenure to a large extent. A number of popular banks like IDBI, SBI, HSBC, CITI Bank and Standard Chartered Bank are offering these kinds of loans. One important thing to know about these loans is that they come with a higher rate of interest as compared to normal home loans. The percentage increase of interest in these loans is about 0.5 to 1%. Before you apply for smart home loans,have a look at the rate of interest of top 5 banks that offer these loans.
| Bank | Rate of Interest |
| CITI Bank | 10.50- 11% |
| SBI | 10.50 – 11% |
| HSBC | 11.50% |
| Standard Chartered Bank | 11.75% |
| IDBI Bank | 10.50 – 10.75% |
Understanding How They Function
Assume that you opt for a home loan of Rs 60 Lakh. Now, let’s say that you have a surplus sum of about Rs 10 Lakh. So, instead of paying off this amount as a prepayment, you submit Rs 10 Lakh in your savings or current account which has already been linked to your loan. Once the bank gets notified, the amount of interest on your home loan won’t be calculated on Rs 60 lakh but Rs 50 lakh which is Rs 10 lakh less than the previous principal amount. So, you end up saving a lot on EMIs and interest using these smart house loans. One of the major benefits of this procedure is that the borrower can withdraw this money at anytime. However, the amount should be submitted again to avoid any inconvenience later on.
Analyzing the Depth
A business owner who has some huge surplus funds to keep in his current account can definitely do well with these loans. However, just like any other thing, smart home loans also have some negative aspects. Here are the cons of smart home loans:
- A certain section of the investors feels that keeping a fixed sum in the current or savings account isn’t really profitable. They feel that investing in mutual funds can give much better returns.
- Keeping in mind the possible overall savings before opting for smart home loans is an important thing to do. The main reason being that these loans come at a higher rate, and so it wouldn’t make any sense if you ended up paying much more than you should have.
- The annual fee charged as a penalty by the banks on the outstanding amount can be very costly for a middle class borrower.
- One of the other issues involves their tax treatment. In terms of taxation, smart home loans fall under the gray area. You’ll have to disclose the surplus amount to the IT department before you submit it in the bank. There is hardly any clarity regarding their disclosure. For this reason, a lot of people have stayed away from these loans.
Irrespective of these minor pitfalls, smart home loans do offer a very good deal to the prospective borrowers who are willing to take the other way round. In order to maximize the benefits of these loans, one needs to research and choose on his part. The best deal being offered in the market should be selected by the individual. If you want to get your hands on the smart home loans, then you could apply for them at https://www.bankbazaar.com/home-loan.html.