Yesterday Axis Bank launched quite a innovative Home Loan scheme (As projected by Media). Today morning when i checked my mailbox, i was surprised to see lot of mails from my reader’s seeking my opinion about this path breaking and industry first “Home Loan Scheme”.
After going through the Press Release issued by Axis Bank, it looked quite compelling scheme on paper and anyone can go ahead with the same without giving any second thought. Only visible catch is that all the EMI payments should be paid on time.
Somewhere in my mind, i was not convinced about the scheme becoz there are “No Free Lunches in this World” after all 12 EMI’s is a very big amount to be waived off. From Layman perspective 1 year waiver on 15 year loan is equivalent to 6.66% on total Payment to bank so instead of 100 Rs, you will pay 93.34 Rs. Some financial cruncher will read it as direct discount of 6.66% in interest rate so if interest is 11% then effective interest is 4.34% but this is not the way to look at it.
To find answer of my queries, i visited Axis Bank as a dummy customer, Though home loan executive was not well versed with the scheme details (Knowingly or Unknowingly). Her only sales pitch was “Waiver of last 12 EMI’s”. After that i visited few more branches & checked with my sources to know more micro details about this scheme.
Here come, some finer details of the scheme
1. The biggest catch is that this scheme is applicable only for loans with tenure of 20 years or more. Indirectly, if u r age is more than 38 years then u r not eligible for this scheme becoz in a normal scenario while lending a Home Loan, Bank assume that you will work only till 58 years and in any case your Last EMI should not extend beyond 58 years of age. Some banks may relax this limit upto 60 years but then also for availing loan under this scheme ur age shud be less than 40 years
2. Next catch is that tenure of ur Home Loan shud be 15 years, what it means is that if ur loan tenure or if u pre-close ur loan before 15 years then you are not eligible for any EMI waiver under this scheme. As i mentioned by me in my previous blogs that average tenure of any home loan is just 8 years i.e. half the Home Loans are closed before 8 years & 90% loans are closed before 15 years therefore approx 90% of customers who will avail loan under this scheme will not be eligible for EMI Waiver until unless Borrower will keep his home loan intentionally active till 15 years to get the benefit.
3. Under this scheme, Interest Rates offered are slightly higher than Market rate. For under 25 lac loan interest rate is 10.75% whereas SBI is offering loan @ 10.25% and HDFC is offering @ 10.5% in this segment.
For loans upto 75 Lacs, Interest under Happy Ending Home Loan scheme is 11% whereas SBI is cheapest @ 10.4% and HDFC @ 10.75%. Above 75 lac, interest rate is 11.25% and again cheapest is SBI at 10.4%
4. Loan Processing Fees is very high @ 1% of Loan Amount: When all the lenders are moving to lower Processing fees regime, Axis bank is charging 1% as Processing Fees. SBI charge approx 1k and HDFC charge 10k + ST but under Happy Ending Home Loan scheme, if u take loan of 70 lacs then u will be paying Processing fees of 70k. This is huge amount.
5. Borrowers will not have flexibility to change their EMI’s or Loan tenure e.g. if after 3-4 years your salary increases & u wish to increase your EMI then you cannot do so. Any change in EMI and tenure by bank will not impact your eligibility of EMI Waiver. Just to add any impact on EMI or tenure due to part payment by borrower will not impact your eligibility provided your Loan Tenure does not go below 15 years therefore you cannot prepay the amount, which reduce your loan tenure below 15 years.
6. Loan cannot be converted from Floating to Fixed during Loan Tenure.
7. No change is allowed in EMI date i.e. 5th of every month. Any change will lead to disqualification from EMI waiver.
8. Of-course, you cannot change ur lender i.e. switch your loan from Axis Bank to any other bank.
9. Most important catch is that waiver is not on the EMI fixed at Loan disbursement but EMI waiver is on lowest of following 3 amounts
a) Last 12 EMIs principal outstanding excluding interest component.
b) If your loan tenure is 15 year 6 months then you will get benefit of principal outstanding of the 6 months EMIs therefore to get complete benefit of 12 Months EMI waiver, your loan tenure should be 16 years (12 months over 15 years).
c) Sum total of 12 EMIs as calculated at the time of disbursement. Obviously this will never be lowest of 3
Conclusion: Through “Happy Ending” Home Loan scheme, Axis Bank has killed following 3 Birds with 1 stone by Dangling a carrot of 12 EMI waiver in front of Borrower
1. Borrower’s Loyalty: In today’s competitive scenario its very difficult to buy Customer’s Loyalty & is most prized gift. With 12 EMI waiver in mind, borrowers in this scheme will rarely think of switching home loan.
2. Probability of EMI Default is Low: Scheme is defunct if EMI is not paid on time, it will bring discipline in EMI payment thus chances of default are very low
3. Limited Pre-Payment Possibility: RBI has removed charges on pre-payment, which encouraged many borrowers to pre-pay loan. With 15 years clause as pre-condition for EMI waiver, the possibility of reducing loan tenure below 15 years through part payment of loan will be minimal. Secondly, if through pre-payment EMI is reduced instead of loan then the benefit of scheme will be diluted.
This scheme will be beneficial only for young borrowers, who are planning to borrow High Loan amount with 15-20 years loan tenure in mind. High Loan amount for luxury properties at young age will be perfect USP for this Loan Scheme.
Disclaimer: Views expressed by me is my personal interpretation of facts and Loan Scheme and is no way binding on any individual. All reader’s are advised to conduct independent & thorough check on Happy Ending Loan Scheme of Axis Bank. Reader’s discretion is required before taking any decisions. I am not responsible for any loss or implications arising out of decision taken by any reader after reading my post. This post is for general information purpose. Kindly read complete disclaimer.
Copyright © 2011-2012 Nitin Bhatia. All Rights Reserved.
A nice article & interpretation….Keep it up…
Small Correction in point 9 (a).
Normally towards the end of the loan, principal component is more and interest component is less.
But it is mentioned reversely.
Thanks for pointing. I stand corrected. I have made necessary change in the Post.
Hello Nitin Bhatia,
Thanks for the nice review. I am aplying for a loan for 27 Lacs. HDFC is providing me the rate of interest with 10.25% (16.5 BPLR with spread 6.25) while the same % is committed by Axis bank executive (Base + 0.25% for whole tenure) for the 27 Lacs loan amount. I am not so interested in the above scheme of Axis but keenly instested on BPLR of HDFC and Base rates of Axis bank. I cannot predict the future but I am worried if HDFC can play with BPLR and might land into paying more to HDFC. I have already started processing with HDFC.
Although I am taking the loan for 20 years, I am planning to migrate to tenure of 15 years later or pre-payment.
As I am new to the loan process, I request you to provide guidance on below points
1. Which bank should be preferred for Home loan?
2. Currently I started the loan processing activity with HDFC and should i cancel the same without paying the processing fee?
3. Although both banks says that there is no prepayment charges, is there any hidden charges in HDFC or Axis
1. Axis Bank
2. Yes, You can do the same provided HDFC has not posted query in your CIBIL database to fetch CIBIL score
3. On Prepayment, there is no hidden charges on floating home loan from Axis or HDFC
Further to this Axis bank has a worst customer service and again your floating interest rate will remain higher thought he RBI reduce it’s bank rate or even if Axis bank itself reduce it’s MRR but the same will not be reflected in your statement….and the end result is that more portion of your EMI’s in initial years will go into interest rather than reducing the balance.
SBI is much better option.
JEEVA PONNIYA (HDFC HOUSING LOAN) Mobile: 9940579357 for HOUSING LOAN REQUIREMENT.
Hi Nitin, Very nice article for newbies like me. I am planning to buy a house for 53L, but my eligibility for home loan is below 80% of prop cost. When i checked axis executive saying, he can give 35L (proc fee only 2.8k) and ICICI exec saying he can give 32L(proc fee 9k). Axis is giving 12EMIs waiver and ICICI is giving 1% cashback offer.
Can you please suggest me, which one to go. Which is having good customer care and speed of processing?
Please help me by providing these details
Out of 2, ICICI bank is better becoz cashback of ICICI will start within 3 years whereas Axis is waiving last 12 EMI’s therefore financial benefit is more in ICICI offer compared to Axis Bank. Speed of processing is same for both but Axis has better customer support.
Hi! Nitin,
I have a high CIBIL score. Can I opt for Home Loan from private or Nationalized Bank at Delhi?
Please suggest!!
Regards/Amitava
Hi! Nitin,
I have a negative CIBIL score, which is below 600. Can I opt for Home Loan from private or Nationalized Bank at Delhi?
Please suggest!!
Regards/Amitava
Banks only provide loan, if CIBIL score is > 750.
Never take home loan from Axis bank…worst bank
Harassment and cheating by Axis bank for Home loan- PHR012600902184
I took Axis bank home loan in Jan’14 as I was advised by my builder Sikka Karnam that only Axis and BOB are providing the loan. I sent them details of my salary docs and my wife salary docs. My wife’s salary was not considered. I was supposed to take a loan of 11.4 lakh as I bought house in 40-60 scheme ( 40 % that is 18 lakh within 45 days and rest 60% that is 27 lakh at possession). I required loan of 11.4 lakh to make it 40%, Builder and guys from axis cheated me as they sanctioned loan of 30 lakh ( although disbursed amount was 11.4 lakh) stating that their is only one scheme of pre -emi for 18 months and after that their will be emi on 30 lakhs although disbursed amount is 11.4 lakh. When builder never required remaining amount still axis informed me that it is the only scheme, it was nexus between builder and axis guys of loan dept. Now after 17 months I want to transfer loan to ICICI bank so that I can pay emi on only disbursed amount of 11.4 lakh and not emi on 30 lakh which I don’t want to pay to builder. I sent mail through my gmail id to axis and their was no reply from axis bank. On same email I was used to get intimation of emi and emi deduction, Axis replied that your this email address was not registered, I sent mail with all details but their was no response from Axis. These mail
communication led to loss of around 10 days with no response from axis. Than I visited axis bank ( CP- Himalaya building-KG road- counter num-3) on Wednesday, 18th June, I applied for all relevant docs involving loan transfer- SOI, LOD and closure doc, I was only given SOI and was not given any other doc in name of policy. Twice I received call from axis bank to reconsider my decision and now they are offering emi on 11.4 lakh, earlier it was their policy of only pre-emi. Everytime I said no. The request num for that day- 5687664. The lady at counter num -3 told me that only 2 docs are required and other one will be sent to your house in 8 days, if not visit again in 8 days. I again visited same branch on 25th June and now axis gave me LOD but denied loan foreclosure doc in name of policy stating that it is never required. Now my next bank wants form closure and and I am not able to give, also every time axis is not giving all required docs leading to harassment and cheating.When I tried to raise this grievance issue through axis portal, everything on portal works, but whenever you are submitting complaint it never works
Never go for home loan from Axis bank…worst bank
They processes my application and legal verification and told your eligible for around 32 Lakhs. I paid advance for sale agreement. Now they are telling they have some issue. My application no is 3369402. Now they are not picking my call. They collected processing fee from and not refunding that. Friend’s my personal advice, plz don’t go for axis bank home loan
Hi Nitin, This is very good article. I planning to take a home loan for 35L. However my registry value is only 25L. I have discussed with many banks for eligibility, some are saying yes they can provide with loan for renovation, some are saying only 80% can be issued as loan of the property value. Can you please tell me what is criteria? Also which one is better, Inidabulls or Axis?
You have not mentioned what is your loan requirement and formula suggested by banks to meet your requirement.
I need loan for 35Lac for 20 years. Banks are saying only 80% can be given as loan of registry value + Loan on account of Renovation (Approx 10 Lac). Is that correct? Can a loan for Renovation be granted at the same time of housing loan? or there is a time difference between normal home loan and renovation loan?
It seems to be ok except the fact that private banks or HFC consider 80% of sale agreement value i.e. 35 lacs in your case. If the apartment is ready to move in or resale then you will get renovation or home improvement loan immediately after processing of Home Loan. In some cases, it is released in trenches i.e. with the completion of each stage of construction work. You should clarify from bank.
For home improvement loan interest paid, you can claim max tax deduction of Rs 30,000 subject to overall limit. You cannot claim tax deduction on principal repayment of home improvement loan.