Home Saver loan is a revolutionary home loan concept designed to help reduce the interest paid, and pay off the loan faster.
I am just penning down my personal experience with the home saver loan and that too after having used the traditional home loan product for more than 5 years.
I bought my first property in August 2004 and got the home loan sanctioned from HDFC Ltd. This was under construction property and bank would pay the demand as and when raised by the builder. When my entire loan was disbursed and I started having some additional savings (by virtue of annual bonus, maturity of NSC etc etc) I would go to HDFC and pre pay my loan. The EMI from next month would get reduced and I and my wife would be very happy as we were progressing towards a debt free life. This continued and within 4 years by 2008 I was able to pre pay my entire loan amount. I was very happy and contended.
We didn’t invest all these years as we were only busy prepaying the housing loan. This period saw one of the biggest Bull Run in the stock market and we missed all that as we just wanted to be debt free. No regrets but had we not prepaid our home loan (which at time was at just 8%) and invested the same money in some other financial instruments we would have been nearing our retirements.
In 2010 I again bought a new property and this time had a higher eligibility of loan- my salary has increased and so has my wife’s salary. I was doing some research and came across my friend as a financial angel who introduced me to Citibank Home Saver account. Citibank senior executive explained me the details of the product and in couple of meetings I was convinced that this is the product to go for.
I opted for Citibank Home Saver product with Vanilla option. They also have a fast track option which is good when one want to repay the loan quickly. I took a loan and purchased the property. The amount was disbursed to the builder and they opened a Current Account linked to my loan account.
The concept, though looks complex, is very powerful. The idea is to make use of your deposit in current or savings account to offset some part of the principal. Once a part of the principal is offset, your interest obligation comes down. I had some Fixed Deposits at 8-9% and the interest on the same was taxable. I got all of them realized and deposited the proceeds in my Current account. Besides this I got my salary account also converted to current account. All my money lying in different instrument helped me reduce the principal balance on a daily basis and I was paying less interest on the loan.
The interest saved by depositing money in the current account is tax free so I am practically earning a tax free return of 11% by depositing money in the home saver linked current account. My EMI’s and credit card bills would be paid on different dates and having linked the current account as salary account I would again save on the interest component.
I opted for Vanilla option as the interest saved during a month would not prepay my principal amount rather the some would be credited back to my line amount. I receive a message at end of every month from Citibank which reads somewhat like this:
Thank you for banking with Citibank.
We wish to inform you that you have saved Rs. 8860.00 on home credit loan no. XXX300 in MAR-13. As on 02-APR-2013, your line amount is Rs. 1030486.19. You can withdraw this amount at your convenience using your ATM Card/ cheque book.
Assuring you of our best service at all times.
Manager – Customer Services
Opting for Vanilla option gives me 2 benefits: a) I will be completing the entire duration of the loan in say 20 years and I don’t wish to break this product. b) I always have the liquidity available with me for rainy days or for investing in other products.
Believe me since I have taken this product it has been very peaceful on the financial front. There is some money always available in the Current account and you really don’t have to worry about paying your EMI’s. With liquidity available I have been able to invest in some of the products where time was the critical factor and have made some hand some gains. Had I taken fast track option the interest saved would have reduced my principal amount and I would be repaying the loan early which I really don’t want to do.
This product is definitely beneficial for people who care for liquidity and have some money available to be parked in the current account. This is a complex product and requires thorough understanding. I can guarantee if you have flavor for investments this is a beautiful product and will assist you in multiplying your gains by using the liquidity.
One my friend having worked for a leading technology company for 18 years finally decided to quit his job and venture into his dream of building a doctor’s network. I was speaking to him and we realized that he would be requiring liquidity as he starts his own venture. He had a home loan and principal outstanding on the loan was around 6 lacs. We discussed this product and arrived at a conclusion to transfer his loan to Citibank Home Saver and get a top up on the existing loan before he quits his job. The process started and bank agreed to do the balance transfer and give the top up as a separate loan as loan against property.
This is where we discussed with bank and got the two separate loans blended into one (the weighted average interest rate of both loans applied) and we got one loan classified as home loan. The bank disbursed the principal outstanding to the existing bank and balance amount was credited to his current account linked to home loan account. He is paying the EMI on the entire month but every month the money which is parked in his current account saves him interest which is credited back to his line amount.
Since then he has funded his current account with 6 lacs which was his outstanding loan amount and is practically paying no interest and enjoys the liquidity of 70 lacs at any given point in time. He doesn’t have to worry for paying his EMI as he has significant amount available in his current account and the EMI can go form the money available in his account. Peace of mind!!! Isn’t it…
I would like to caution on this product – the liquidity could be dangerous if you are not a judicious spender. If you start using the liquidity for buying depreciable assets and expensive lifestyle this product is a big no for them.
I have used the Citibank Home Saver Loan product but the similar products are available with other banks as well. Some of the prominent one’s being- Home Saver from Standard Charted Bank, Smart Home from HSBC, Home Loan Interest Saver from IDBI Bank, and SBI MAXGAIN from SBI.