Home Loan OD Enhances Financial Control For Borrowers In India: Anuj Sharma, IMGC

Taking a home loan is a long-term affair; it is said that it takes a lifetime to repay it. However, there are multiple ways to repay it before one gets old. In an interview with BW Businessworld, Anuj Sharma, Chief Operations Officer, IMGC (India Mortgage Guarantee Corporation), discussed the home loan overdraft account that provides relief to repay the entire amount in fewer days. 

He stated that the overdraft facility on a housing loan allows the borrower to deposit any additional lump sum amount over and above the monthly EMIs to their loan account. The additional amount can remain in the loan account, and the borrower also gets the option to withdraw funds from the account as and when required. Edited excerpts:

What is a home loan OD (overdraft) account, and how does it differ from a regular home loan account?
Home loan OD is a hybrid financing tool that links your existing home loan with a linked savings or current account. It allows you to deposit surplus funds into the linked account, which reduces your outstanding loan balance and accrued interest. Additionally, you can withdraw these funds within a pre-approved limit, offering instant liquidity when needed.

While gaining traction, it is not yet ubiquitous in India. Major players like ICICI Bank, Kotak Mahindra Bank and HDFC Bank offer variations of this product, with eligibility criteria and features differing between lenders.

Explain the concept of an OD facility in the context of a home loan, and how does it benefit borrowers?
In the dynamic Indian home loan market, where affordability and financial flexibility are key concerns, the Home Loan Overdraft (HLO) product emerges as an innovative solution. This product allows borrowers to manage their finances more efficiently. It combines the long-term stability of a traditional home loan with the liquidity and convenience of an overdraft facility. 

What are the key advantages of having an Overdraft account associated with a Home Loan, and how does it provide financial flexibility to borrowers?

It provides enhanced financial flexibility through various advantages. Firstly, it allows borrowers to access readily available funds without the need for separate loans or credit cards. Secondly, the overdraft account facilitates interest savings as deposits serve as prepayments, effectively reducing the overall interest paid on the home loan. Interest is calculated solely on the outstanding loan balance, empowering borrowers to cut down interest costs by depositing surplus funds into the overdraft account. Lastly, HL OD offers flexible prepayment options, eliminating the prepayment penalties typically associated with traditional lump-sum prepayments. Managing deposits and withdrawals becomes convenient through the linked account, providing borrowers with a user-friendly and efficient financial tool.

Are there any potential drawbacks or considerations that borrowers should be aware of when opting for a Home Loan OD account?

Home Loan Overdraft (HL OD) comes with limited availability as not all lenders provide this option, and eligibility criteria can be stringent. While it offers the convenience of easy access to funds, there is a risk of the temptation to overspend, potentially leading to impulsive expenses and exceeding the overdraft limit, resulting in higher interest charges.

Moreover, frequent withdrawals from the overdraft account may lead to a potential loss of savings, diminishing the benefits of prepayment and interest savings. Additionally, borrowers should be aware of additional charges and stricter terms associated with HL OD. Some lenders may impose processing fees or account maintenance charges, and interest rates for HL OD might be slightly higher compared to traditional home loans. Therefore, individuals considering HL OD should carefully weigh the advantages and potential drawbacks before opting for this financial arrangement.

Can borrowers convert their existing home loan into a Home Loan OD account, or is it typically offered as a separate product at the time of loan approval?

Yes, they can opt for the same by using a balance transfer to the banks that are offering it. Yes, it is a separate savings account that operates a current account within it.