A home loan needs to be repaid during its tenure, by way of equated monthly installments (EMIs). The amount of the EMI, as the name suggests, remains similar throughout the mandate of the loan, unless there are circumstances, such as changes in the interest rates, warranting a change in the amount of EMI. House loan providers have been trying to create, with their offerings. Axis Bank has introduced a product called ‘QuickPay Home Loan,’ where the value of EMI’s go down gradually, as the interest comes down.
This is nothing but a reverse of another famous product called the ‘telescopic home loan,’ which is provided by various lenders, including HDFC Limited, where the amount of installment gradually goes up. This product is useful for the people who are at the starting point of their careers and therefore, their income is also low. A significant number of young people have been buying their first homes, at the beginning of their jobs. The telescopic home loan takes into account the potential for an increase in the income of the borrower and thus, helps the borrower to get a higher amount as home loan and that too, for a longer tenure of 30 years.
The QuickPay Home Loan of Axis Bank is nothing but the reverse of the telescopic home loan product, where the amount of installment goes down gradually. This can only happen with relatively higher payments at the initial stage, as compared to traditional home loan products.
The main attracting point for the QuickPay Home Loan is that the overall interest cost comes down significantly. This is a rumor, as the borrower pays the interest for the period for which he uses the money.
Primarily, a majority of home loan borrowers use up all of their savings, to make the down-payment for the property. Buyers may also have to borrow from friends and family, to fund the margin money, which has to be paid along while servicing the home loan. Furthermore, the home buyer has to spend for at least the basic furnishings in the home. Under these circumstances, it may not be optimal for an average home buyer, especially those at the starting of their careers, to service the higher amount of home loan installments.
One can always get the main interest cost reduced, by prepaying part of the home loan at regular intervals, depending on the availability of surplus funds. With proper home loans, you also have the flexibility to plan your prepayment, to maximize your tax benefits, under Section 80C concerning the first advance, as well as interest benefits, under Section 24b of the Income Tax Act. Also, the interest rate for the QuickPay product is a little higher than that for a regular home loan. Hence, I would not recommend this product to any home buyer, irrespective of whether he is at the beginning of his career or in the middle of his career.