The festive season, which is considered an auspicious time for buying a home, is here again and to cash in on the festive fervour and give a boost to credit offtake, some banks and housing finance companies have come out with special schemes on home loans. For instance, ICICI Bank recently unveiled a mortgage product assuring borrowers a 1% cashback on their monthly installment payment. The product can help a borrower get up to 11% of the principal amount in a 30-year loan period. The minimum loan tenure to avail of the product has been fixed at 15-30 years and a customer has the option either to adjust the cashback against principal outstanding or, get it as a direct credit in his bank account. The cashback will start accruing from the first EMI itself, but will first get credited to the customer after completion of 36th EMI and subsequently on a yearly basis.
The cashback product came weeks after Axis Bank launched an offering promising to waive EMIs if the borrower does not default on EMIs. Under this scheme, borrowers applying for loans up to Rs 30 lakh will be able to avail the benefit of waiver of 12 EMIs. The effect of EMI waiver will be given in the form of reduction in the tenure of home loan.
Financial experts say that cashback home loans are the latest offerings from banks in addition to the lower rate of interest and Government schemes like PMAY to spur the buying momentum for home buyers.
“With certain cashback loans, customers can choose to adjust the cashback against principal outstanding of their home loan or they can get it as direct credit in their bank account. The cashback starts to accrue from the first EMI itself and first gets credited to the customer after completion of the 36th EMI. Subsequently, it will be credited to the customer after every 12th EMI,” says Navin Chandani, CBDO, BankBazaar.com.
In another cash-back loan for loan amounts below Rs 30 lakh, the bank will waive off 4 EMIs each, at the end of the 4th, 8th and the 12th year of a twenty-year loan. This means that if a borrower takes a 20-year loan, the consumer will get 12 of the EMIs waived off. In other case, the bank will waive of 6 EMIs after completion of 10 years and 6 EMI’s after completion of 15 years for loan amounts above Rs 30 lakh and tenor between 15 and 30 years.
Cashback home loan is designed to keep the customer with the lender throughout the tenor of the loan and discourage them from refinancing their loan. So, always take the applicable rate of interest on the cashback home loan into account before applying. Cashback loans may also have a higher mark up on MCLR at times, increasing the cost of the loan in future,” says Chandani.
In matters of repayment, always consider a shorter tenure to repay the loan faster rather than going in for a loan with a higher tenure with waiver of EMIs, principal adjustments or cash credit. Paying the loan off through a shorter tenure will always be a cheaper option. Similarly, principal adjustment is always a more beneficial option than cash credit.