Who does not want a few of their home loan EMIs to be waived off? I am not speaking about the EMI moratorium scheme introduced due to Covid crisis in 2020. Under the moratorium scheme, EMIs were just postponed and not waived.
Here, I am talking about Axis Shubh Aarambh home loan product, where the bank actually waives off 4 EMIs thrice during the loan tenure. That’s a total of 12 EMIs. Not bad, right?
By the way, we have reviewed a similar product from Axis Bank before, Axis Bank Fast Forward Home Loan where you got 6 EMI waiver at the end of 10th and 15 years. However, there are a few differences. Axis Fast Forward Home Loan is targeted at high-income borrowers, with home loans ranging from Rs 30 lacs to Rs 5 crores.
Under Axis Shubh Aarambh home loan, the loan amount ranges from Rs 3 lacs to Rs 30 lacs. Clearly, the target is a lower income segment. The timing of EMI waiver is also different. The EMI waiver in Axis Shubh Aarambh Loan kicks in much earlier at the end of 4th, 8th, and 12th years, making it more attractive.
Axis Shubh Aarambh Home Loan: Salient Features
- Loan Amount: Rs 3 lacs to 30 lacs
- Loan Tenure: 20 to 30 years
- Maximum Loan to Property Value: 90%
- Only Floating rate option. Fixed interest rate not permitted
- You can avail loan from under-construction, ready-to-move-in and resale properties. Can also take this loan for self-construction, plot-plus-construction, home extension and home improvement
- Both salaried and self-employed are eligible
How Does Axis Shubh Aarambh EMI Waiver Scheme Work?
You get a waiver of 4 EMIs at the end of 4th, 8th, and 12th years.
This does not mean that you won’t have to pay EMIs for 4 months. The waiver will be in the form of offset of principal. Essentially, your home loan principal amount will be reduced by an amount equivalent to 4 EMIs. And you will continue to pay regular EMIs.
Which EMI will be considered?
This is a valid question. After all, the EMI will change due to interest rate fluctuations. The EMI at the start of the loan or the prevailing EMI?
As per product FAQs available on Axis Bank website, the prevailing EMI shall be considered for the calculation of the waiver amount.
There Are a Few Conditions to Be Met
- No instance of overdues for over 90 days AND
- Maximum 3 instances of monthly dues pending for 30 days or more AND
- Minimum loan tenure at the time of disbursement shall be 20 years AND
- While prepayments are allowed, the tenure of the loan shouldn’t fall below 4 years. It is unclear whether the tenure means “total loan tenure” or the “outstanding loan tenure”
If Axis Bank means “total tenure”, there is obviously no chance of getting an EMI waiver since the first waiver kicks in at the completion of the 4th year. If you repay the loan before 4 years, you won’t get any waiver.
Let’s consider another scenario. You have been paying EMIs for 2 years. After 2 years, you make a significant prepayment that brings down your “Outstanding Loan tenure” to 3 years. Total loan tenure is still 2+3 = 5 years. In this case, there can be confusion. If Axis Bank meant tenure (for condition 4) to be “Outstanding Loan Tenure” to be 4 years, you won’t get any EMI waiver on completion of 4th year. If the bank meant “Total Loan tenure”, you would get the EMI waiver on completion of 4th year.
While my reading of FAQs suggests that Axis Bank means “Total Loan Tenure”, you must still clarify this before signing up for this loan product.
Why Do Banks Do It?
Firstly, it is a good marketing strategy. Who does not like EMI waivers? The scheme will immediately catch the attention of anyone scouting for a home loan.
Secondly, this acts as a deterrent in loan prepayment. If you are a good borrower, the banks won’t want their money back soon. After all, if you return the money, they will have to find another borrower to lend the money to. The banks want to grow their loan books. Hence, they would try to find new borrowers and want the existing borrowers not to prepay their loans. But we know that, in India, borrowers tend to prepay their home loans. As a bank, how do you build a deterrent? Incentivise borrowers to NOT prepay their loans and stay in the loan for a longer period. And that’s what the EMI waiver scheme does. Put EMI waiver schedule deep into the repayment tenure. That’s like dangling a carrot. If you want the benefit, don’t prepay the loan too soon.
And there can be additional conditions in the fineprint too. For instance, in Axis Fast Forward home loan, while you are allowed to prepay your home loan subject to conditions, you are not allowed to increase your loan EMI (by reducing tenure). If you did that, you will no longer be eligible for the scheme. The bank can change EMI due to the change in interest rate but you can’t. Even though I did not find this condition explicitly mentioned in Axis Shubh Aarambh FAQs, you must check out such aspects if you are keen on this product. If you are keen on this product, check such aspects.
What’s Good for the Borrower?
Compared to Axis Fast Forward loan where the waiver kicked in after 10 years, the EMI waiver in this product kicks in after 4 years. Hence, you do not have to wait for a long time to get the waiver benefit. Good for you. And there is a clear saving for you.
Let’s say you took a Rs 30 lacs loan. Rate of interest: 8% p.a. Loan Tenure: 20 years. EMI for the loan will be Rs 25,093.
Assuming the interest rates don’t change and you don’t make any prepayments:
- You will get the first EMI waiver of Rs 1,00,373 (4 X 25,093) at the end of 48th month. This will bring down the tenure by 14 months.
- Next 4 EMI waiver at the end of the 96th month will bring down the tenure to 218 months.
- The EMI waiver at the end of the 120th month will bring down the tenure to 211 months.
So, because of this waiver benefit, you have saved about 2.5 years of EMI. That is a significant saving. If we add up the numbers, that is an absolute saving of Rs 7.36 lacs. And the effective pre-tax cost of loan falls from 8% p.a. to 7.18% p.a. Very significant saving.
All good. However, there are a few aspects you must keep in mind before availing this loan.
Things to Check before Availing the Loan
Interest Rate Differences: Compare the interest rate of this loan product against the interest rate for regular home loan products. You do not want to pay a high rate of interest for the EMI waiver benefit. For instance, the interest rate for a regular home loan from Axis was 8% p.a. and the interest rate for Shubh Aarambh loan was 8.5% p.a., you would pay an EMI of 26,035 instead of Rs 25,093. Even after the waiver, your pre-tax cost of loan will fall to about 7.56% p.a., which is only a marginal benefit against 8% p.a. in regular home loan product.
Loss of Flexibility: And even this marginal benefit comes in with loss of flexibility. You can’t prepay home loan too soon. For instance, if you prepay home loan in 10 years, you won’t get the EMI waiver due at the end of 12th year and the effective cost would go up to 7.77% p.a. You must also check for additional eligibility restrictions in the fine print on changes in EMI etc. before signing up. And assess whether the EMI waiver benefit is worth the flexibility forgone.
I cannot find flaw with this product. The only problem is that you might have to compromise on the repayment flexibility if you want to get the full benefit of this product. If you are fine with this loss of flexibility and the interest rate is not too different from a regular home loan product, this product is worth exploring.
Additional Reading: Axis Bank Shubh Aarambh Home Loan: FAQs