We all know the traditional loan products in the home loan industry i.e. the home loan product & the mortgage loan product. We assume that you also know the very common facts and figures of such products such as the rate of interest, processing fees, other charges, offering banks, fixed or floating rate of interest, loan tenure, etc. Also, the one who wishes to take a loan does make a research/study of the products to ensures he knows the necessary loan product he wishes to opt for.
In the view of the change in the field of the home loan industry, newer products and extended benefits of the traditional products have found its way. In order to meet the specific requirement of the loan borrowers, products are being upgraded with extended benefits to match their requirements.
Smart home loans, mortgage o/d, reverse mortgage are examples of such specially upgraded products introduced to meet the specific requirement of the loan borrowers. Let’s know about these products, their benefits and how are they different from traditional products.
1) Smart Home Loan
The other name for a smart home loan is “home loan saver” product. A home loan that enables one to save interest and thereby reduce the loan tenure is the Smart Home Loan. In this product, the home loan is linked to your savings or current account with the same bank. The surplus funds in your account help to reduce the interest liability on your home loan. How? – Whenever a surplus amount is deposited, the bank deducts this amount from the home loan principal amount for calculating the interest and the interest is charged only on the balance outstanding loan amount.
It is important to remember that any such surplus deposits are used only to lower the interest liability. No interest is paid on the surplus deposits. However, there are no restrictions on the withdrawal of this surplus money or a part of it.
Not all banks offer this product. As of now, only a few specific banks offer this product that includes Standard Chartered Bank, SBI, Citibank, HSBC, and IDBI Bank.
The rate of interest for a smart home loan is usually 0.50%-1% higher than the normal home loan interest rates.
2) Mortgage Overdraft
The name itself suggests- where a mortgage loan is given in the form of overdraft facility it is called “Mortgage O/D”. The product is majorly implemented to meet the working capital requirement of the business class. It is provided against the mortgage of property which can either be residential or commercial.
Facilities in mortgage o/d are similar to normal overdraft account, as an interest to be charged only on the used amount i.e. the loan amount withdrawn, no conditions on prepayment of the loan, no foreclosure charges, no restrictions on the number of times pre-payments done, etc. It is mandatory for the applicant to open a current account with the loan applying bank if he does not one with the bank.
Banks that offer mortgage o/d are namely-ICICI bank, HDFC, Axis Bank, Bank of Baroda, etc.
The rate of interest for mortgage o/d is generally 1%-2% higher than the mortgage loan.
3) Reverse Mortgage
With due respect to the elderly who want to live independently, the Union Government of India introduced the concept of Reverse Mortgage in order to secure their financial requirements of meeting their day-to-day living expenses and increasing cost of medical treatments.
Reverse Mortgage helps the senior citizen above the age of 60 years to avail of regular/periodical payments from Banks/Non-Banking Financial Institutions (NBFC) against the mortgage of their house while still retaining the ownership of the house and occupying the same. The interest amount in this type of loan is rolled into the loan balance, also the borrower does not have to repay the loan borrowed under reverse mortgage during his life, lifetime or till such time he continues to stay in the house. The entire loan balance along with the interest becomes payable only when the borrower sells the house or moves away permanently or when the last surviving borrower dies OR when the borrower willingly pre-closes the loan.
It is important to note that the money borrowed in reverse mortgage cannot be used for any business or trading purposes or for investments in shares or real estate/ properties. They can be used only for a specific purpose like meeting the day-to-day livelihood expenses and the medical treatment of the borrower, spouse or dependant person, repairs and renovation of the property.
Banks/ NBFCs which provides Reverse Mortgage in India are, SBI, Central Bank of India, Indian Bank, PNB, Andhra Bank, Canara Bank, Corporation Bank, NHB, LIC Housing Finance, DHFL, etc.