How Borrowers Can Save Big With Home Loan Overdrafts

Opting for OD over a regular home loan depends on surplus availability, financial discipline

- Neil Borate & Aprajita Sharma

Former PhonePe executive Jagadeesh Mohan is building a business around overdraft (OD) home loans like SBI Maxgain. These loans let borrowers park the surplus funds in the loan account, reducing the interest charged. Mohan says replacing a standard loan with an OD loan and shifting idle savings can lead to significant savings. While OD funds don't earn savings-account interest (4-6%), they help cut home loan interest (8.25%).

Why not simply prepay the loan outstanding with the surplus, you may wonder. That's because unlike prepayment, funds in an OD account remain accessible. "Even if you park surplus at the start of the month and withdraw some later, you still save interest," said Mohan, founder of Emisaver.com. By his estimates, ₹5 lakh parked in a Maxgain-type account can save ₹18 lakh in interest over 25 years.

Home loan maximising

Hyderabad resident Ankur Pathak (43) bought his first flat in 2014, for which he took a regular home loan from HDFC Bank. He got to know about SBI Maxgain through a fellow resident of his society. He then did his own research and thought it would be worth it.

"The new loan was priced slightly higher to the HDFC ROI. I had to incur some additional cost of transferring the loan to the new bank, too. I did some calculations which suggested that the interest saving with my available surplus parked in the Maxgain account could cover the additional expenses in two years and the rest could be profit. I went ahead with it," he said.