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Is Home Loan Overdraft A Better Option For You?

Is Home Loan Overdraft A Better Option For You?

Home loan overdraft is new concept trending in the real estate loan market today. Few banks have come forward to offer this tempting option to encourage buyers to purchase a home with the help of the loan. On hearing the word, you may be confused if this option could be your choice. To understand better whether you should go for an overdraft on a home loan, know the difference between traditional home loan and loan overdraft. You should analyse all the drawbacks and benefits to knowing if this option provided by the lenders suits you at the best.

What is home loan overdraft?

This overdraft facility on the housing loan is similar to overdraft on your current account. You can deposit the idle funds towards the home loan account which are considered as prepayment towards the principal. When the principal amount of the loan reduces, the interest you pay on the loan will be lessened so, will be your loan EMIs.

The interest on the housing finance is calculated on the outstanding principal after deducting the savings deposited in the loan account above EMI. This is a wonderful option to the people who have a surplus income and want to use the funds towards the pre-payment of housing loan. Your overall liability towards the loan reduces when you use surplus funds in your account to pay off the loan.

Is it a right option for you?

You should go for this option when you are sure that you have surplus income every month which you can use towards the payment of the loan. The surplus amount you drop into the account should exclude your regular EMI. This turns to be a better option for the self- employed people who have short term liquidity.

How does it work?

When you deposit surplus funds in the home loan account towards part prepayment, these funds will be never available for usage again. In the case of home loan overdraft facility, interest is calculated on the outstanding balance every day so, the surplus funds you deposit in the loan account are available for reuse anytime. Business owners who have a need for the cash during uncertainties can avail this housing finance overdraft facility over personal loan when needed. You will have flexible repayment facility when you choose to with this option over a traditional loan. However, availing this option is more expensive over traditional one.

Benefits

There will be no prepayment penalty
Offers more liquidity
Good option to reduce loan Burdon with surplus income

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