Everyone loves to live in owned house but with sharp increase in property prices in last 10 years, buying a property has become difficult for a middle class person. For such people, home loan becomes a boon to fulfill their dreams.
Home loan enable a person to own a property which was beyond his reach till yesterday. However, it adds to a series of EMI (Equated monthly installments) which reduces his disposable income for a significantly long period of time. So immediately once you take a loan, it requires you to take a responsibility to repay it diligently.
With changing scenarios in job markets or business sentiments, the income scenario is also getting volatile. The uncertainty in the job market raises an eyebrows on the constant flows of money. Now where inflows are uncertain and outflows are certain, it is a issue. Typical alternative people adopt is to keep a buffer in form of some bank deposit to provide for such solution but such deposit offer lesser interest rates and also attract income tax on interest.
Another alternatives is to opt for home saver plan. In this plan, Bank opens a current account along with your home loan. The amount in this current account is deducted from the loan outstanding amount for the calculation of interest. For example, if your loan outstanding is Rs.15lacs and amount in your current account is Rs.2lacs, the interest will be charged on Rs.13lacs. As such you save a interest on Rs.2lacs of outstanding or we also say that you earned an interest rate equivalent to your home loan rates, which is always higher than bank deposit rates. Also you don’t have to pay any income tax on the so called ‘interest earned’ on this Rs.2lacs.
The EMIs get debited regularly from the current account only. The reduced interest burden in the EMI increases the repayment amount share. Say if due to this Rs.2lacs, which were lying in current account, the interest liability fell by Rs.2000 in a month, the EMI amount will be used for the repayment of the principal.
Not only this, home saver account also brings in the benefit of flexibility in using your own money. Say, if you wish to apply for any IPO or short term investment, it is as simple as issuing a cheque to withdraw your amount.
There are some disadvantages also. Like with reduced interest rates, your income tax deduction might reduce which you were availing towards ‘loss from house property’. Also your money will be lying in current account, which unlike saving bank account, donot pay any interest on deposits. So it is good to keep money in such account only till you cover your loan amount.
Hope this helps to manage your money better. Donot forget to share this on your social media account for the benefit of your friends.