Axis Bank has created a tizzy in the home loan space with its new Shubh Aarambh home loan scheme where 12 staggered EMI waivers are offered to customers. 4 EMIs each will be waived at the end of the 4th, 8th and 12th years respectively. The maximum loan amount under this scheme is Rs.30 lakh and the minimum tenor should be 20 years. The loan cannot be prepaid before a period of 4 years.
Customers will have to keep their home loans running for a minimum of 48 months in order to get the benefits arising from the EMI waiver. The floating interest rate is 8.35% per annum at present for salaried customers while it goes up to 8.40% for self-employed customers. To get this loan, processing fees of 1% of the loan amount have to be paid with a minimum amount of Rs.10,000. The processing fee will be thus Rs.30,000 for a loan of Rs.30 lakh and the EMI cycle will commence on the 5th of every month. The EMIs, however, will not be waived in case any EMI is overdue for 90+ days or in case there are three instances of payments being late for 30+ days.
Axis Bank has stated that the amount of the waiver will be the same as the least opening principal of the four EMIs that will be waived post the completion of 48, 96 and 144 months from the date of the first disbursement. However, the bank has also clarified that the interest and principal will both be waived. Customers will get the benefit by way of three lowered tenors throughout the entire loan term. In case there are changes in the EMI amounts on account of MCLR fluctuations or prepayments, the opening principal of EMIs existing when the waiver is to be given, will be taken into account.
A loan of Rs.30 lakh for 20 years at 8.35% per annuam will lead to a total outgo of Rs.61.80 lakh and the interest component will be Rs.31.80 lakh out of this while Rs.30,000 will also be paid by way of processing fees. In this situation, the principal amount (49th month) for four months will be Rs.27,490 and the interest waived on principal for this period will be Rs.75, 513. In case everything remains same, the principal waiver in three instalments will be Rs.1.23 lakh with the interest waiver being Rs.1.86 lakh. The total waiver can be around Rs.3 lakh.
In this current home loan market, several housing finance companies and banks are offering interest rates between 8.35-8.50% and processing charges to the tune of 0.5% of the loan amount. Several banks have also offered complete waiver of processing fees. Home loan borrowers in India usually prepay their loans and hence the average home loan tenor is around 13 years according to experts. In a falling interest rate scenario, this average can plunge to 10 years according to industry experts. In case the customer will prepay the loan with any bonus or surplus funds, the Axis Bank scheme does not quite make sense.
However, in case this product is chosen, one should always get more clarity on the waiver of both interest and principal components and should ensure that this is clearly integrated into the loan agreement that is signed with the financial institution.