India Markets close in 5 hrs 44 mins

How Does a Home Loan with Overdraft Facility Work?

Adhil Shetty
Image source: Freepik

Q: How does a home loan with overdraft facility work? – Ayan

A: People usually go for a home loan because they don’t have sufficient funds to buy a home. However, there are many people who have sufficient funds but want to use it for their business or other things. Many of such people also have access to surplus inflows from time to time, but they don’t want to spend it all buying a house and want to have continued access to their fund.

For the benefit of such borrowers, some banks offer a product called home loan with overdraft facility. In such a loan account, borrowers can park any excess fund to bring down the loan component and the interest would be charged only on the remaining outstanding amount. Borrowers can withdraw that fund again whenever they want.

For example, suppose you have an outstanding home loan with OD facility of Rs. 30 lakh. You got Rs. 10 lakh for a short period, so you put that amount in the loan account. Your outstanding loan amount will come down to Rs. (30-10) 20 lakh and the interest would be charged only on this reduced amount. As such, borrowers can save a lot on the interest outgo with a home loan OD account.

Having said that, the interest applicable on a home loan OD facility is higher than a regular home loan product. So, you’ll be well-advised to consider all these factors before going for a home loan OD product.

Have a question on personal finance? Ping me on Twitter at @adhilshetty with the hashtag #AskAdhil.