Why Are Banks Tightening The Rules Around Home Loan Overdraft?

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In India, SBI tops the list being the largest mortgage lender, extending a helping hand to around 30 lakh families to fulfil their vision of possessing a home. SBI offers attractive rewards for SBI home loans. It provides easy navigation over their policies and schemes online and through their mobile applications. 

One of the other profitable options is provided by HDFC through its HDFC Home loans. HDFC Home loans provide an attractive interest rate with tailored repayment options making it easier and affordable for its borrowers.

Recently, banks and other financing institutions have started to clench back the new SBI Home loan or HDFC Home loan overdraft. These banks have started to make the regulations rigid instead of completely closing it, such as covering the money in an overdraft account. This is strange as banks would earlier use this way of overdraft to endorse their ingenious home loan saver option.

Home loan OD or Overdraft is a facility offered by the banks and financial firms under which an individual can enjoy stationing an additional amount issued under an already existing Home loan.

The excess sum covered in the home loan overdraft account is considered as a pre expenditure fee towards the home loan. This is deducted from the home loan amount. This makes it simpler for the borrowers to compensate for the interest which will be authorized merely on the balance home loan fraction. Furthermore, the borrowers get the opportunity to withdraw the amount whenever in need. Likewise, the rebate in the account of home loan overdraft would equally increase the balance amount of home loan.

Benefits of a home loan overdraft account to the borrowers:

  • Home loan overdraft account benefits the borrowers in many ways as it helps them save a lot of money on the rate of interest without any use of paperwork or documentation. This doesn’t even require the transfer of the balance amount to another bank which results in a lower rate of interest. Therefore, it is one of the most promising preferences for people who have a superfluous abundance of the sum.
  • Home loan overdraft offers its account holders the opportunity to withdraw funds whenever they require.
  • As per the financial advisors, the interest which an individual saves is the interest that they earn. Therefore, they advise their costumers with a good home loan balance amount, to save their excess funds in a home loan overdraft account. When interest on an amount is reduced, this helps the borrowers to shut down their loans promptly.
  • Home loan overdraft is an adequate option for households with more than one earning member. This ensures that the surplus fund inflow is reasonably high. This also includes the working class and people involved in the business which earns more than expected or gets a bonus now and then.

A Coin has two sides similarly; every facet of the community has both its benefits and drawbacks. The drawback involved with the home loan overdraft is that the excess amount repaid towards the home loan does not come under the qualification of tax reduction which comes under the income tax law section 80(C). This is because of the justification, that, it is not deemed as a method of reimbursement. 

The interest which will be saved will also be considered as a portion of the functional balance amount in the home loan overdraft account. This too will not entitle for tax reimbursement under section 24. 

Likewise, the interest rate implied on the home loans with the policy of overdraft would be much elevated as compared to the typical loans. Therefore, borrowers are advised to do an expenditure- benefit inspection to evaluate and make sure that the expenditure of the loans does not burden down the advantages of saving interests through the overdraft account.

A major reason for the tightening of regulations over the home loan overdraft:

The main reasons that the banks and other financial firms and institutions are holding back the trend of home loan overdraft are that the multinational banks situated in India, preceded by the private banks and a few public banks aim to entice the public with their policies. Only a few banks are currently offering these overdraft policies which include the SBI Home loan and HDFC home loan. Although it benefits the borrowers in numerous ways, the benefits which were enjoyed by the banks were negligible. This forced the banks to either unwillingly step back or tighten the regulations associated with the overdraft policies.