Axis Bank has a unique offering where the bank waives off your last 12 EMIs if you have maintained a good repayment record. Looks like a really good deal. Who wouldn’t like to save on 12 EMIs? You would, right? Why will a bank waive off the EMIs? Banks never do charity. Clearly, there is more to it than meets the eye. Let’s find out more about this product.
Axis Bank Fast Forward Home Loan: Salient Features
- Available to both salaried and self-employed professionals
- Minimum loan amount is Rs 30 lacs
- Maximum loan amount depends on the income. No maximum limit specified on Axis Bank website
- 20% margin (down payment) on loans upto Rs 75 lacs
- 25% margin (down payment) on loans greater than Rs 75 lacs
- Minimum loan tenure is 20 years
- Maximum Loan tenure is 30 years. Additionally, the age of the borrower at maturity must not exceed 60 and 65 years for salaried and self-employed individuals respectively
- The scheme is available only as a Floating rate loan. No Fixed rate option
- Based on information available on Axis Bank website, the interest rates charged are same as for standard home loan. Note that reality may be different
What Exactly Is the Scheme?
Your 12 EMIs will be waived off. The benefit is offered through waiver of principal amount equivalent of 6 EMIs twice. First 6 EMIs are waived off after 10 years. i.e., 120 months from the date of first disbursement. Next 6 EMIs are waived off once you have completed 15 years (180 months) in the loan. Do note only your last 6 or 12 (depending on how long you were in the loan) EMIs at the end of the loan tenure will be waived off. Additionally, your EMI does not change as a result of the waiver. Only the loan tenure is reduced after the waiver.
Let’s consider an example. Suppose you take a Rs 50 lac loan at 9% for 20 years. Your EMI will be Rs 44,986. Assume the interest rate does not change during the loan tenure and the EMI does not change. You do not make any prepayment either. After 10 years, you will get waiver for 6 EMIs. i.e., your total loan tenure will go down to 19.5 years (remaining tenure 9.5 years). After 15 years, you will get another waiver of 6 EMIs. i.e., your total loan tenure will go down to 19 years (remaining tenure: 4 years).
Points to Note
If the principal outstanding is less than the value equivalent of 6 EMIs at the time of waiver (or the number of balance EMIs is less than 6), the loan will be automatically repaid. This means if the number of balance EMIs is less than 6 (or 12) after payment of 120th (or 180th) EMI installment, only the remaining EMIs will be waived off. For instance, if only 5 EMIs remain to be paid after payment of 120th EMI, only those 5 EMIs will be waived off. Or if only 10 EMIs remain to be paid after payment of 180th EMI, only those 10 EMIs will be waived off.
I excerpt here an example from FAQ page on Axis Bank Fast Forward Home Loan.
Question: On account of rising interest rates, Axis Bank has increased my EMI from Rs 24,959 per month at the time of disbursement to the current Rs 30,070 per month. Hence, when I am eligible for an EMI waiver, will I get the benefit computed at 30,070 EMI?
Reply: Yes. The benefit passes on to you is in the form of reduction in tenure twice during the tenure of the loan on the completion of 10th and 15th year from the date of 1st disbursement. In case of any change in EMI amount due to prepayments or fluctuations in Base Rate/MCLR, the EMIs existing at the time of waiver will be considered.
Pre-Conditions to Be Met to Get Waiver of EMI Benefit
Your home loan tenure shouldn’t have fallen below 10 years. This means you have to keep this loan alive for at least 10 years. Therefore, if you make a pre-payment and the loan tenure falls to less than 10 years (120 months) from the date of first disbursement, you will not be eligible for waiver of EMI benefit. For the second waiver after 180 months, your loan should be running at the time of waiver for you to avail benefit. Makes sense too. You can get a loan waiver only when you have a loan.
You should have a clean repayment record. Only up to 3 instances of dues pending for up to 30 days. No dues over 90 days during the entire loan tenure.
You can’t increase loan EMI due to increase in salary or any other reason. Please understand this is different from changes in EMI due to interest rate fluctuations. Changes in EMI due to interest rate fluctuations do not affect your eligibility for this benefit. It is also possible that due to wild fluctuations in interest rates, your home loan tenure may fall below 120 months or 180 months. In such cases too, you will be disqualified from availing EMI waiver. You can make part-payment to reduce your EMI burden (and keep the tenure same), if you so wish. You can do this to get the full benefit of the waiver facility.
What Are the Benefits to the Bank?
- Makes for a good advertisement. Who wouldn’t like a waiver of 12 EMIs of the home loan?
- Rules out heavy pre-payment of the loan. Many borrowers like to prepay entire home loans as early as possible. Now, they have to continue in this loan for at least 10 years if they want to avail EMI waiver (for 15 years if they want the second waiver too).
- You can’t take a loan transfer to another bank. If you do, waiver is gone.
- Requirement of clean prepayment record brings in discipline too.
What Are the Positives for the Customer?
You get the EMI waiver if you meet all the eligibility conditions. That will bring down the cost of loan. Let’s assume you took a loan of Rs 50 lacs at 9% p.a. for 20 years. The EMI will be Rs 44,986. Let’s further assume that the interest rate stays constant at 9% throughout the loan tenure and you do not make any pre-payment. Your loan will get over in 228 months (instead of contracted 240 months). Such waiver will effectively reduce the pre-tax cost of your loan to 8.73% p.a.
What Are the Negatives for the Borrower?
- If you want to qualify for EMI waiver, you have to be in this loan for at least 10 years. You can’t close it too soon if you want to avail the benefit of EMI waiver.
- For the full benefit, you need to be in the loan for 15 years.
- As you salary increases, you may want to expedite loan repayment. However, if you increase EMI (on your own), you cannot avail the benefit.
- You can’t take a balance transfer in search of better interest rates. You lose the EMI waiver benefit if you do.
What Should You Do?
On the face of it, Axis Bank Fast Forward Home Loan looks like a really good product. And it is. The issue is with stringent eligibility conditions. These conditions tend to take out much flexibility with home loan repayment. Home loan is a long term commitment. When you take the loan, you cannot be too sure how loan repayment will pan out. Hence, any borrower will prefer flexibility with repayment. My limited experience suggests that many borrowers try to close out the home loan much earlier than the contracted schedule. This product takes away this flexibility. Well, flexibility is still there but you lose out on the USP of the product if you exercise too much discretion.
Everything else being same, this product is a winner. However, if I were shopping for a home loan, I would first shop for lower interest rates and lower spread. I will consider EMI waiver benefit if everything else is same.