Home Loan Festival Schemes: How Good Are They?

Maths Behind The Home Loan Festival Schemes

During the festival times, each and every company tries to lure customers. For this, they come with many attractive offers and discounts. In this competitive market, banks too are not behind. Banks are giving many offers on their various products. Home Loan is just one of them. Recently, the biggest private lender of the country, ICICI Bank launched a cashback scheme on home loan. Its name is 1% Cashback. In August, Axis Bank has launched its home loan scheme with name ‘Shubh Aarambh’. In this scheme, Axis bank will waive off 12 EMIs. If you are also planning to take home loan, I am going to compare the schemes of ICICI bank and Axis bank.

 

ICICI Bank 1% Cashback Home Loan Scheme

First of all I will explain the ICICI Bank’s scheme. Under it, you will get 1% cashback on every EMI. You can take this cashback facility up to 30 years. This scheme is also available for those who want to transfer their existing home loan from another bank. But to get benefits under this scheme, there are some conditions. These are as follows:-

  1. You will get a cashback of 1% on every EMI paid for the entire loan tenure.
  2. The amount of cashback will be either credited to your ICICI Bank account or will be adjusted against principal outstanding of your loan.
  3. The cashback amount will be accumulated on all EMIs for the first 3 years (36 months) and credited at the end of this period.
  4. After first credit of cashback, the next one will be credited yearly till the loan closure.
  5. You can get cashback only if EMI is deducted from your ICICI bank account.
  6. You would have to take home loan for at least 15 years.
  7. Cashback will not be credited for Pre-EMI interest.
  8. At the time of calculation of cashback i.e. at the end of the cashback period, all EMIs should be paid and there should be no EMI over-due.
  9. The cashback facility shall not apply to principal prepayments or part prepayments. The cashback amount will be calculated only on the EMI payments.
  10. After first cashback (i.e. at the end of 36 months), if your home loan is closed, the cashback benefit will be calculated on the actual EMI payments made.
Home Loan ICICI

ICICI Bank Home Loan Cashback Scheme

Actual Benefit In ICICI Bank Home Loan Cashback Scheme

It is clear that the Cashback has the same effect as a part pre-payment into the home loan account. But now we will calculate its actual benefits for you. We are taking the following assumptions:-

Loan amount- Rs. 30 lakh 

Period- 20 years

Rate of Interest- 8.35%

Your EMI will be Rs. 25,751, therefore, you will get Rs. 257.51 as cashback per month. We assume that for the whole period of 20 years, your EMI doesn’t change. If you go for your cashback to be adjusted in principal amount, the bank claims that you will get actual benefit of Rs. 1.45 lakh. But remember that this benefit is applicable for you if you continue with home loan for whole 20 years. And, the present value of this 1.45 lakh is Rs. 30,209. It means that with the ICICI bank cashback scheme, your benefit for the 20 years is equivalent to handing you over Rs. 30,209 today.

Axis Bank Shubh Aarambh Home Loan Scheme

Now, we will analyse the Axis Bank Shubh Aarambh Scheme. Before availing its benefits, you must remember the following conditions:

  1. You can take maximum loan of Rs. 30 lakh.
  2. Loan period must be minimum 20 years. It can be up to 30 years. 
  3. Bank will waive off 12 EMIs. 4 EMIs waived off at the end of the 4th, 8th & 12th year. 
  4. Repayment track record should be clean. During the life of the loan, you can’t delay the EMI for 30 days more than 3 instances. And, it should never exceed the 90 days during the life of the loan.
  5. Home loan can also be part paid, as long as the loan tenure does not fall below 48 months. 
  6. The processing fees will be at least 1% of the loan amount or Rs. 10,000. 
  7. If you are eligible for Pradhan Mantri Awas Yojana Scheme, you can club this as well. 
  8. You can transfer existing home loans to Axis Bank and avail this benefit. 
  9. Under this scheme, the EMI cycle will be 5th of every month for all customers. 
  10. NRIs will not be eligible to take home loan under the Shubh Aarambh scheme.
home loan axis

Axis Bank Shubh Aarambh Scheme

Actual Benefit In Axis Bank Shubh Aarambh Home Loan Scheme

Now we will calculate its actual benefits for you. We are taking the following assumptions for your home loan.

Loan amount- Rs. 30 lakh 

Period- 20 years

Rate of Interest- 8.35%

EMI will be Rs. 25,751. Bank will waive off 4 EMIs each at the end of 4th, 8th & 12th year. If your EMI doesn’t change during the tenure of the home loan, you will get total benefit of Rs. 25,751×12= Rs. 3,09,012.

The present value of this amount is Rs. 1.64 lakh. If we deduct the processing fees of Rs. 30,000 (1% of 30 lakh), your real benefit is Rs. 1.34 lakh.

It means that you will have more benefits in Axis bank Shubh Aarambh rather than ICICI bank cashback scheme. 

Home Loan Festival Schemes: The Conditions Of Prepayment 

Before taking a final decision, you must remember one more thing. In India, most of the home loan customers prepay the loan before the end of the tenure. Its average is 13 years, i.e. in 13 years, an average Indian closes its home loan account. As the interest rates are reducing, this average is expected to come down to 10 years. It means that you will close your home loan account in 10 years, though you would have taken that for 20 years. But in both the above mentioned schemes, if you go for prepayment, you will not be able to take the full benefits.

Home Loan Festival Schemes: The Bank Takes It All

Such schemes benefits banks more than you. You will associate with banks for more time and their interest income will increase. I will explain it for you with an example. We are taking the same assumptions as above.

Home Loan amount- Rs. 30 lakh 

Period- 20 years

Rate of Interest- 8.35%

If you continue this home loan for 20 years (240 months), you will be paying Rs. 61,80,240 to bank. It means that you are giving bank Rs. 31,80,240 as interest only. But if you take this very loan for 10 years, you will be paying Rs. 44,34,600 i.e. only Rs. 14,34,600 as interest. So, it is clear that your 10 years longer association with home loan will result in Rs.17.45 lakh more earning for bank. Then why will bank want that you prepay the loan? Hence such ‘deemed attractive’ home loan schemes come into existence.

Therefore, if you intend to prepay your home loan, don’t go for mere rhetoric. Do the maths properly, calculate the benefits clearly and then decide. And, if you do have any question or confusion about home loan, just write to me.

 

Leave a Reply

Your email address will not be published. Required fields are marked *