Are you planning to take a home loan soon? Do you have surplus funds with you? Then, a super saver home loan can be the right choice for you. Though the interest rates are slightly higher than regular home loans, super saver home loans will reduce your total payout substantially if used properly.
This is because the surplus funds when parked in an OD (Overdraft) account linked to the home loan, earn you a significantly higher interest than regular savings accounts. State Bank of India (SBI), Axis Bank, HSBC, Standard Chartered Bank, and Citibank offer ‘super saver’ home loans. Here is a guide on super saver home loans, their features, advantages, and disadvantages.
What are super saver home loans, and how do they work?
This is a type of home loan that enables the borrower to save on interest payments and repay the loan faster by parking surplus funds in an OD account linked to the loan. While the loan is repaid in the form of regular EMIs (Equated Monthly Instalments), the amount in the form of OD in your account gets adjusted to the principal component of the EMI.
For instance, if you have a home loan of ₹60 lakh and have ₹10 lakh in the savings account, you can create an OD account (some banks call it a super saver account) and transfer the entire balance to this. Then, you can link it to your home loan. So, the loan amount reduces to ₹50 lakh, and the interest is calculated every day in the month on this reduced principal till you withdraw the surplus money. This way, you will be able to save on interest for the loan and earn a better yield for your surplus.
“Your home loan interest is calculated on the principal outstanding minus the savings deposited in your Smart Home DLOD (Drop-Line Overdraft) every month, over and above your EMI,” according to HSBC’s explainer on super saver home loans.
“Customers can reduce the quantum of interest paid and, as a result, reduce the tenure of their loan, helping in quicker amortization (repayment) of the loan liability,” according to Standard Chartered Bank, which offers a ‘Home Saver’ Loan, a super saver home loan product. The surplus funds can be withdrawn on requirement. But you will lose the benefit of lower principal outstanding and interest payments if you do so.
Do these loans have additional fee/charges?
Yes, some banks charge a ‘commitment fee’ of up to 1% for the unutilised loan amount sanctioned. For instance, if the bank has sanctioned ₹6 lakh and you have utilised only ₹5 lakh, a commitment fee will be charged on ₹1 lakh.
In this case, the commitment fee will work out to ₹1000. Some lenders also do not allow you to withdraw the surplus money till you take physical possession of the house. Some banks have restricted OD to a certain percentage of the home loan amount.
So, if you have a home loan of ₹60 lakh and the OD limit set by the bank is 8%, you can park surplus funds of only up to ₹4.8 lakh. Banks also charge a ‘conversion fee’ for changing the home loan from a normal one to a super saver home loan. The ‘conversion fee’ varies with each lender.
What are the disadvantages?
Super saver home loans typically carry a higher interest rate. They charge 0.5%-1% more than regular home loans. You will not be able to get tax deduction benefits for the portion of the interest that is saved on the home loan. So, you must plan your payments carefully to ensure that you do not lose out much on annual tax benefits.
Super saver home loans can help you reduce interest payments substantially and lower the tenure. But unless you have sizeable surplus money parked in the account linked to the loan for a long period of time, they will not make any sense. If you can park substantial surplus funds over a longer tenure, you can go for a super saver home loan, as the benefits are quite big.
Here is an illustrative table to help you understand the difference better:
| Loan Type | Regular Home Loan | Super Saver Home Loan |
|---|---|---|
| Loan Amount ( ₹) | 6000000 | 6000000 |
| Interest (%) | 8.5 | 9 |
| Surplus ( ₹) | Not Applicable | 1000000 |
| EMI Paid ( ₹) | 52069 | 44986 |
| Total Loan Amount Paid ( ₹) | 12496655 | 10796711 |
| Total Interest Paid ( ₹) | 6496955 | 5796711 |
| Interest Saved ( ₹) | Not Applicable | 700244 |
| Tenure | 20 years | 20 years |
Please do note that this is only an illustration. For these calculations to work, you have to keep the surplus amount parked in your account as advised by your bank. Calculate the interest saved with the tax benefit that you get with the full loan amount, as it will enable you to choose the better option.
Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.
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