In an earlier post on home loan for borrowers in the low and middle income segment, I had reviewed PNB Housing Unnati Home Loan Scheme. In this post, I will review Axis Bank Asha Home Loan Scheme that is targeted at the same segment.
You can take this loan for
- Purchasing a ready, under-construction or a resale property
- Purchasing a plot and constructing a house thereon. This is something new to me. As I understand, it is not easy to get a loan to purchase a plot of land
- For construction of house on a plot that you already own
Axis Bank Asha Home Loan Scheme: Salient Features & Eligibility
- Minimum Loan amount: Rs 1 lac
- Maximum Loan Amount : Rs 28 lacs subject to 90% of the documented cost or 85% of the market value. The maximum amount goes down to Rs 20 lacs for cities where the population is less than 10 lacs. The population shall be considered as per Census 2011
- Maximum Loan Tenure: Up to 30 years for floating rate loans or up to 20 years for fixed rate loans
- Minimum Property area should be 300 sq. feet
- Minimum income: Rs 8,000 or Rs 10,000 depending upon location. In case of joint loan, the income criterion will apply to combined income
- Loan is available to both salaried and self-employed
- Loan can be extended to those persons who receive their salary in cash
- Loan is available in both fixed rate and floating rate options. Pre-payment penalty of 2% in case of pre-payment in fixed rate loans
- Since the loan is being offered to middle and low income segment, you can expect the interest rates for his loan to be slightly higher. This is to compensate for the higher risk taken by the bank. You can check the latest loan rates here
- You can get up to 12 EMI waived under the loan scheme (more on this later)
- You can avail benefit under Credit Linked Subsidy Scheme under Pradhan Mantri Awaas Yojana (PMAY)
I am sure there will many other unwritten criteria (at least not mentioned on the website). For instance, There is no mention of the maximum age at the time of loan maturity.
Loan Eligibility Can Be Misleading
As mentioned in my post on PNB Unnati scheme, you need to be practical about your loan eligibility. It is unlikely you will get a loan of Rs 28 lacs at a monthly income of Rs 10,000. The bank will also consider your repayment ability. There is no way you can repay loan of 28 lacs at a monthly income of Rs 10,000 unless you have other sources of income. For Rs 28 lacs loan at an interest rate of 9.75% (this is the minimum rate mentioned currently on the Axis Bank website) and loan tenure of 30 years, the EMI will be Rs 24,056. Considering Axis Bank is comfortable with Fixed Obligations to Income Ratio (FOIR) of 50%, your monthly income needs to be at least Rs 48,112 before you can think about getting the maximum loan amount. At an income of say Rs 10,000 per month, you will not get a loan which is more than Rs. 6-8 lacs (even after considering subsidy under PMAY).
This brings me to another point. If you have to take a loan of up to Rs 28 lacs and can actually afford it (you have an income of about Rs 50,000 per month), why not go for a regular home loan scheme? Your interest rate will be much lower. For instance, for Axis Bank Fast Forward loan, the minimum loan size is Rs 30 lacs and the interest rate is much lower (6 month MCLR + 0.20% for salaried customers). Contrast this with MCLR + 1.60% for salaried customers in case of Asha Home Loan Scheme. I am sure Axis Bank may have slightly relaxed eligibility criteria under Asha Home loan. However, this is still an aspect you must think about.
EMI Loan Waiver
Up to 12 EMIs will be waived if you maintain clean repayment record. 4 EMIs shall be waived off at the end of 4th, 8th and 12th year. You will get this waiver only if:
- There are only up to 3 instances of dues pending for 30 days and above AND
- No instance of dues pending for over 90 days during the life of the loan AND
- The minimum tenure of the loan shall not be less than 20 years at the time of disbursement
Needless to say, your loan should be alive for 4, 8 or 12 years for you to avail this tax benefit. Do note this EMI waiver comes in the form of tenure reduction towards the end of the loan tenure. It is not that you don’t have to pay EMIs for 4 months after 4th, 8th and 12th year.
Let’s assume you take a 20 year loan. The interest rate does not change during the term and you do not make any pre-payment during the porting scheme. If you satisfy the other conditions, you loan tenure will go down as 19 years. This will bring down effective pre-tax cost of the loan. There are a few caveats with the waiver facility. I have discussed various aspects of EMI waiver in the post of Axis Bank Fast Forward Home loan scheme.
Good Points and the Points I Am Not Very Clear About
As mentioned in PNB Unnati scheme, you get a loan tenure of up to 30 years, which can reduce the EMI amount but increase the absolute interest outgo. Even though fixed rate option is available under the Axis Bank Asha Home Loan scheme, the number of years for which the loan will stay fixed rate is not specified. For PNB Unnati scheme, the fixed rate option was available for 3, 5 and 10 years. There is no difference in eligibility for salaried and self-employed professionals.
How Does the PNB Housing Finance Unnati Scheme Fares against Other Products?
I reproduce the comparison table used in comparing PNB Housing Unnati and Asha Home Loan Scheme.
|Features||PNB Housing Unnati Scheme||Axis Bank Asha Home Loan|
|Maximum Loan Amount||25 lacs||20-28 lacs depending on the location|
|Loan as % of Property value||Up to 90% for salaried, 67% for self-employed||Up to 85% of the property value|
|Maximum Loan Tenure||30 years||30 years|
|EMI Waiver||No||Up to 12 EMIs, subject to conditions|
|Minimum Monthly Income||10,000||8,000-10,000 depending on the location|
When it comes to comparing two loan products, everything else being same, go with the one that offers you the lower interest rate. Personally, I prefer banks over Housing Finance companies. Pricing is likely to be more transparent with banks.
Disclaimer: The loan and FAQ page for Axis Bank Asha Home Loan Scheme seems like designed in haste. There are a few pieces of conflicting information too on the pages. Since I have relied on information available solely on the website, some of the information may be inaccurate. You are advised to visit a bank branch for accurate details about the product.