Should you opt for Axis Bank’s 12 EMI-wavier home loan product?
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Axis Bank Ltd recently launched a new home loan product—Shubh Aarambh. The loan product promises to waive 12 equated monthly instalments (EMIs). Under the scheme, the maximum loan amount you can take is Rs30 lakh. The minimum tenure at the time of disbursement should be 20 years and you can’t prepay before 4 years.
This means, you need to stay with the bank with this loan for at least 48 months to get the EMI waiver benefit. Currently, the floating interest rate is 8.35% per annum for salaried individuals and 8.40% per annum for self-employed borrowers.
To avail the loan, processing fee is set at 1% of loan amount, with a minimum amount of Rs10,000. So, for a Rs30 lakh-loan, the processing fee will be Rs30,000 and the EMI cycle has to mandatorily start on the 5th of every month. This product is available only for resident Indians. If your repayment record is not consistent—an EMI is overdue for 90-plus days or if there are three instances of payments late by more than 30 days— the EMIs will not be waived.
If you meet all the parameters, you will get a staggered waiver of 12 EMIs—four EMIs to be waived at the end of the 4th, 8th and 12th year.
According to the bank’s website, the waiver amount will be equal to the least opening principal of the four EMIs to be waived after the completion of 48, 96, 144 months from the date of first disbursement. However, the bank later clarified that both the principal and the interest will be waived off. “The reason our FAQ mentions the word ‘principal’ on the website is that the waiver in the loan account is of the principal amount—thereafter, the interest is not charged on this waived amount,” the bank’s spokesperson wrote to Mint in an email. The benefit will be passed on to you in the form of three reduced tenures during the loan term. In case of any changes in EMI amounts—due to factors such as prepayments or fluctuations in the marginal cost of funds based lending rate (MCLR)—the opening principal of the EMIs existing at the time of waiver will be considered.
To understand the product better, let us look at the example of a Rs30 lakh-home loan for a 20-year tenure at an interest rate of 8.35% per annum. At the end of the tenure, the total loan plus interest amount would be Rs61.80 lakh, out of which Rs31.80 lakh would be the interest amount. You would also have paid Rs30,000 as processing fee for this loan. Each EMI comprises of two components, principal and interest, and the bank said that both will be waived. In this example, the 49th month principal amount for 4 months will be Rs27,490 and interest waived on principal for the same period will be Rs75,513.If everything remains constant, the waiver on principal in the three instalments will be Rs1.23 lakh and interest waived on the principal will be Rs1.86 lakh. Hence, the total waiver can be rounded off to Rs3 lakh.
“I think the processing fee is too high. There are banks offering lower processing fee. Through the product, the bank is trying to get a sticky customer if rates in the home loan market change dramatically. They are also trying to ensure fewer defaults and fewer prepayments by offering a carrot,” said Surya Bhatia, managing partner, Asset Managers.
What should you do?
This is a falling interest rate market. Major banks and housing finance companies are offering interest rates in the range of 8.35-8.50%. Some banks are offering processing charges of 0.5% of the loan amount. A few banks have waived processing fees completely. “In India, home loan borrowers have a tendency of prepaying loans and usually the average home loan tenure is 13 years,” said Naveen Kukreja, co-founder and chief executive officer, PaisaBazaar.com. In a falling interest rate tenure, the average home loan tenure can go to 10 years, said Bhatia. If you think you will be prepaying the loan as soon as you get some bonus or extra cash, this product is not for you. In case you opt for this product, make sure that you get clarity from the lender about both the principal and interest waiver and ensure that it is incorporated in the loan agreement.