How I saved ₹ 2.37 Lakhs Interest on My Home Loan

Today, I will tell you how I have saved Rs. 2.37 lakhs on home loan interest.

Let me take you on a journey of how I managed to save a significant amount on my home loan interest by opting for a home loan overdraft facility. In this article, I will take you through the features, benefits, and pros & cons of this financial tool, and how it can be a game-changer (if used wisely) for anyone looking to manage their finances better.

It all started when I decided to buy my dream home. I needed a loan of ₹40 lakhs to make this dream a reality. After researching various options, I stumbled upon the concept of a home loan overdraft. Intrigued by its potential benefits, I decided to go for it.

Understanding the Home Loan Overdraft

A home loan overdraft is essentially a facility that links your home loan to a savings or current account. The beauty of this setup is that any surplus funds deposited into this account reduce the principal amount on which interest is calculated. This means that the more you deposit, the less interest you pay.

As soon as I receive my salary, I transfer the funds to my home loan overdraft account, even though my salary account is with a different bank. To streamline this process, I’ve set up an automatic transfer at the beginning of each month. Throughout the month, I use the overdraft account for all my expenses, ensuring that every rupee works to minimize the interest on my outstanding home loan balance. This smart approach helps me stay financially efficient while reducing my overall interest burden.

Flexibility and Savings

One of the biggest advantages of the home loan overdraft facility is its flexibility. I could deposit any surplus funds into the account and withdraw them whenever needed. This came in handy during emergencies and unexpected expenses. Over time, I continued to deposit any extra money I had, further reducing the principal amount and saved on my home loan interest for about 2.37 lakhs which otherwise I would have to pay as interest.

Factors to Consider Before Opting for an Overdraft Facility

Before choosing a home loan overdraft, consider the following:

• Interest Rates: Overdraft facilities may carry slightly higher interest rates compared to regular home loans. (Tip: Go with nationalize banks, they offer cheaper rates as compared to private banks.)
• Fees and Charges: Be aware of any additional fees associated with the overdraft facility. (this can be negotiate with the bank, believe me they do negotiate)
• Discipline Required: The flexibility to withdraw funds requires financial discipline to avoid unnecessary debt accumulation. (itna to aap kar hi loge..!)

Comparing Offers

To ensure I was getting the best deal, I compared offers from various banks. Here’s a snapshot of the offers I considered:

Tips to Maximize Benefits from Overdraft Facility

• Regular Surplus Deposits: Consistently deposit extra funds to reduce principal and interest.
• Avoid Unnecessary Withdrawals: Treat the overdraft account as a savings tool, not a spending account.
• Monitor Account Regularly: Keep track of transactions to maintain financial discipline.

Common Misconceptions about Home Loan Overdraft

• "It's the Same as a Regular Home Loan": Unlike standard loans, overdraft facilities offer flexibility in fund management.
• "All Banks Offer This Facility": Not all banks provide home loan overdraft options; it's essential to research and choose accordingly.
• "Deposits Are Locked In": Deposited funds can be withdrawn, offering liquidity.

 The Results

By the end of my loan tenure, I realised that I had saved a substantial amount on interest payments. The flexibility of the home loan overdraft facility allowed me to manage my finances better and provided the liquidity I needed for unexpected expenses.

Pros and Cons of Home Loan Overdraft

Pros:

• Flexibility: Access to surplus funds when needed.
• Interest Savings: Reduced interest burden through principal reduction.
• Liquidity: Funds remain accessible, unlike traditional prepayments. It works as your emergency fund as well.

Cons:

• Higher Interest Rates: Slightly higher than regular home loans.
• No Tax Benefit on Deposits: Surplus deposits don't qualify for Section 80C deductions.
• Requires Discipline: Easy access to funds may lead to unnecessary withdrawals.

Tax Implications

Deposits made into the overdraft account are not considered as principal repayments; hence, they do not qualify for tax deductions under Section 80C of the Income Tax Act. However, interest paid on the loan may still be eligible for deductions under Section 24(b).

Conclusion

Opting for a home loan overdraft was one of the best financial decisions I made. It not only helped me save on interest costs but also provided the flexibility to manage my funds efficiently. If you’re considering a home loan, I highly recommend exploring the home loan overdraft facility. It could be the key to smarter financial management and significant savings.

Feel free to share your thoughts or experiences with home loan overdrafts in the comments below. If you found this info helpful, don't forget to like and share it with your network! Please subscribe to my newsletter for such informations.

Disclaimer: I have no affiliation with any of the bank mentioned in this article, this info is only for the education purpose, i am not making any money out of this.        

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