# Axis Bank QuikPay Home Loan: A Loan without EMIs

We regularly discuss unique and innovative loan products on this website. A few weeks back, we had discussed Step Down Home Loans launched by a prominent financial institution. In this post, we discuss a unique home loan product from Axis Bank. Axis Bank has recently launched a new product “QuikPay Home Loan”. Let’s find out how this loan product works.

## What Is Unique about Axis QuikPay Home Loan?

Under this loan product, there is no concept of EMI or Equated monthly payments. This is because you do not pay the same amount every month. Strange, isn’t it? With Axis QuikPay, you repay the same amount of principal every month. By the way, this is in addition to the monthly interest payments.

For instance, if you take a loan of Rs 50 lacs, you repay Rs 20,833 (50 lacs divided by 240 months) of principal every month. Interest for the month is calculated as usual by multiplying the outstanding at the end of previous month by the monthly rate of interest. These two add up to your monthly payment under the loan. The principal is constant, but the monthly interest keeps changing. Therefore, the monthly payments are not constant.

Let’s take an example. You take a loan of Rs 50 lacs for 20 years. Rate of interest is 9% p.a. Here is how your repayment schedule will look like. I assume that the rate of interest remains the same and you don’t make any prepayments.

 Month O/S at the beginning of the month Interest paid Principal Repaid Monthly Payment O/s at the end of the month 1 50,00,000 37,500 20,833 58,333 49,79,167 2 49,79,167 37,344 20,833 58,177 49,58,333 3 49,58,333 37,188 20,833 58,021 49,37,500 4 49,37,500 37,031 20,833 57,865 49,16,667 5 49,16,667 36,875 20,833 57,708 48,95,833 6 48,95,833 36,719 20,833 57,552 48,75,000 7 48,75,000 36,563 20,833 57,396 48,54,167 8 48,54,167 36,406 20,833 57,240 48,33,333 9 48,33,333 36,250 20,833 57,083 48,12,500 10 48,12,500 36,094 20,833 56,927 47,91,667 … … … … … … … … … … … … … … … … … … 231 2,08,333 1,562 20,833 22,396 1,87,500 232 1,87,500 1,406 20,833 22,240 1,66,667 233 1,66,667 1,250 20,833 22,083 1,45,833 234 1,45,833 1,094 20,833 21,927 1,25,000 235 1,25,000 937 20,833 21,771 1,04,167 236 1,04,167 781 20,833 21,615 83,333 237 83,333 625 20,833 21,458 62,500 238 62,500 469 20,833 21,302 41,667 239 41,667 312 20,833 21,146 20,833 240 20,833 156 20,833 20,990 –

As you can see, the principal repaid remains constant during the loan tenure. For this reason, your monthly payments are not equal either. You can also notice that the monthly loan payment goes down every month.

### Comparison: Regular Home Loan Repayment

Under a regular home loan EMI, you pay equal monthly instalments. First, monthly interest is calculated on the outstanding loan amount. Anything left goes towards principal repayment. For more on how regular home loan EMIs work, refer to this post. I post the repayment schedule for the same loan (Rs 50 lacs, 20 years, 9% p.a.). As you can see, only a small portion of your EMI goes towards principal repayment initially. The principal portion of the EMI increases over the loan tenure.

 Month O/S at the beginning of the month EMI Interest paid Principal Repaid O/s at the end of the month 1 50,00,000 44,986 37,500 7,486 49,92,514 2 49,92,514 44,986 37,444 7,542 49,84,971 3 49,84,971 44,986 37,387 7,599 49,77,372 4 49,77,372 44,986 37,330 7,656 49,69,716 5 49,69,716 44,986 37,273 7,713 49,62,003 6 49,62,003 44,986 37,215 7,771 49,54,232 7 49,54,232 44,986 37,157 7,830 49,46,402 8 49,46,402 44,986 37,098 7,888 49,38,514 9 49,38,514 44,986 37,039 7,947 49,30,566 10 49,30,566 44,986 36,979 8,007 49,22,559 … … … … … … … … … … … … … … … … … … 231 4,31,850 44,986 3,239 41,747 3,90,102 232 3,90,102 44,986 2,926 42,061 3,48,042 233 3,48,042 44,986 2,610 42,376 3,05,666 234 3,05,666 44,986 2,292 42,694 2,62,972 235 2,62,972 44,986 1,972 43,014 2,19,958 236 2,19,958 44,986 1,650 43,337 1,76,621 237 1,76,621 44,986 1,325 43,662 1,32,960 238 1,32,960 44,986 997 43,989 88,970 239 88,970 44,986 667 44,319 44,651 240 44,651 44,986 335 44,651 –

## Do You Really Save Interest?

In terms of absolute interest cost, you save a lot of money in QuikPay home loan. Since you are paying a higher principal amount (and higher monthly payments) from the very beginning, the absolute interest paid will be lower under the QuikPay Loan scheme. However, the cost of the loan remains the same in both the cases. i.e., in the example discussed above, the cost of loan is 9%.

Under a regular home loan scheme, you pay total interest of Rs 57.96 lacs. Under QuikPay home loan, you pay total interest of Rs 45.18 lacs. That is a neat saving of Rs 12.77 lacs. However, do note the cost of loan is the same in both the cases. You could have achieved a similar effect by prepaying your loan on a regular basis (as we would discuss later).

## Should You Opt for Such Products?

Axis QuikPay loan is a unique product. It is a fine product and I do not have issues with the product structure per se. However, it makes little sense to pay a higher rate of interest for this product. Going by Axis Bank website, the rate for Axis QuikPay home loan is about 15 to 20 basis points (0.15% to 0.2%) higher than regular home loan. As a borrower, you should never sign up for such a deal. Till such time you have to pay a higher rate of interest, stay away from Axis QuikPay Home Loan. There is no point paying a higher rate of interest. Axis Bank, in its press release, cleverly tried to show that you pay less even if the rate of interest is higher. This is the kind of gibberish that banks throw at us all the time and we fall for it. Avoid making such mistakes.

Most of us tend to prepay our home loans anyways and there is no prepayment penalty either. Thus, most home loan borrower pay much lesser absolute interest anyways. Remember, even with prepayments, the cost of the loan remains the same. In fact, if you could the prepay the differential principal amount every month and re-amortize the loan every month, you will replicate the Axis QuikPay structure on your own. Remember, this is at no additional interest cost. If you don’t trust me, here is the proof. You can match the numbers in the illustration for QuikPay home loan above.

 Month O/S at the beginning of the month Monthly Payment (re-amortized every month) Interest Paid Principal Repaid Principal prepayment every month O/s at the end of the month Net Monthly Payment Difference between QuikPay and this method 1 50,00,000 44,986 37,500 7,486 13,347 49,79,167 58,333 – 2 49,79,167 44,866 37,344 7,522 13,311 49,58,333 58,177 – 3 49,58,333 44,746 37,188 7,558 13,275 49,37,500 58,021 – 4 49,37,500 44,626 37,031 7,595 13,239 49,16,667 57,865 – 5 49,16,667 44,506 36,875 7,631 13,202 48,95,833 57,708 – 6 48,95,833 44,386 36,719 7,668 13,166 48,75,000 57,552 – 7 48,75,000 44,267 36,563 7,704 13,129 48,54,167 57,396 – 8 48,54,167 44,147 36,406 7,741 13,092 48,33,333 57,240 – 9 48,33,333 44,028 36,250 7,778 13,055 48,12,500 57,083 – 10 48,12,500 43,909 36,094 7,815 13,018 47,91,667 56,927 – … … … … … … … … … … … … … … … … … … … … … … … … … … … 231 2,08,333 21,702 1,562 20,140 693 1,87,500 22,396 – 232 1,87,500 21,622 1,406 20,216 617 1,66,667 22,240 – 233 1,66,667 21,543 1,250 20,293 541 1,45,833 22,083 – 234 1,45,833 21,463 1,094 20,369 464 1,25,000 21,927 – 235 1,25,000 21,384 937 20,446 387 1,04,167 21,771 – 236 1,04,167 21,304 781 20,523 310 83,333 21,615 – 237 83,333 21,225 625 20,600 233 62,500 21,458 – 238 62,500 21,147 469 20,678 155 41,667 21,302 – 239 41,667 21,068 312 20,756 78 20,833 21,146 – 240 20,833 20,990 156 20,833 0 -0 20,990 –

Clearly, it can be an operational hassle and the bank can limit the number of prepayments in the year. However, you don’t have do this every month. You can prepay every quarter or an annual basis and relax.