Financial Innovation in credit products is the order of the day. Recently, I came across Bajaj Housing Finance myEMI home loan product. How is this product different from existing home loan products? Let’s find out.
Bajaj Housing Finance myEMI Home Loan Product
Under this product, you can choose your EMI subject to the following conditions.
- The amount is at least 0.1% of the principal amount, subject to a minimum of Rs 4,999.
- This relief is available only for under-construction properties.
- You can use this option for up to 3 years or the completion of the project, whichever is earlier.
- On completion of 3 years or the completion of the project, whichever is earlier, you must pay regular or the Full EMI.
As I understand, the home loan structure is somewhere between Pre-EMI and Full EMI loan structures. Before we start comparing, let’s quickly check what these are.
Full EMI Home Loans
Available for both under-construction and ready-to-move-in properties. You pay the full EMI i.e. pay interest and repay principal with each EMI.
For instance, for a loan of Rs 50 lacs at 9% p.a., your EMI (monthly payment) will be Rs 44,986.
Quite a big burden, especially if your house is under construction. You will have to manage both house rent and full EMI burden at the same time.
Pre-EMI Home loans
This is available only for under-construction properties. Until the end of specified period (3 years 5 years or any other period) or until the completion of property, whichever is earlier, you pay only the interest on the disbursed amount (and not the sanctioned amount). Thereafter, full EMI kicks in.
Such a structure is useful for borrowers since they don’t have to pay home rent and full EMI at the same time. Paying both rent and full EMI can stretch your cashflows quite a bit.
Let’s say your sanctioned loan amount is Rs 1 crore and Rs 50 lacs has been disbursed until now. In this case, you will pay the only the interest on Rs 50 lacs (the disbursed amount). Rs 50 lacs X 9%/12 = Rs 37,500.
Not a big difference from Rs 44,986 in case of Full EMI. Still, this is some relief if you must pay rent too.
The drawback is that during the initial years, your principal outstanding does not go down. Therefore, you end up paying more (in absolute terms) over the loan tenure.
It is not mandatory to opt for pre-EMI loan structure for under-construction properties. It is your choice.
For detailed comparison between the Full EMI and Pre-EMI home loans, refer to these posts:
- Pre EMI vs. Full EMI — Which Is Better?
- Pre-EMI vs Full EMI — Understanding payment schemes for under-construction properties
Bajaj Housing Finance Pre-EMI
This falls somewhere between Pre-EMI and full EMI. In this case too, your full EMI does not begin until the end of 3 years or project completion, whichever is earlier.
As per a LiveMint article, until such period ends, you can pay just 0.1% of the principal amount as monthly payment, subject to a minimum of Rs 4,999.
So, let’s say you have been disbursed Rs 50 lacs. You can pay just Rs 5,000 per month to keep the loan regular.
However, I think there is a problem with this approach.
A Rs 50 lacs at 9% for 20 years will require interest payment of Rs 37,500. A payment of Rs 5,000 can’t keep the account regular. You must at least pay the interest in full. If you don’t pay the interest in full, Bajaj Housing Finance will have to mark your account as NPA within a few months. The HFC wouldn’t want that.
Therefore, my understanding is that this 0.1% is over and above the interest payment every month. Hence, the monthly installment will be Rs 37,500 + 5,000 = Rs 42,500. Will go down with time.
This is more than the Pre-EMI (Rs 37,500) but lower than the full EMI (44,986).
| Full EMI | ||||
| Loan Amt: 50 lacs Interest Rate = 9% p.a. Loan Tenure: 20 years | ||||
| O/S at the beginning of the month | EMI | Interest | Principal repayment | O/S at the end of the month |
| 5,000,000 | 44,986 | 37,500 | 7,486 | 4,992,514 |
| 4,992,514 | 44,986 | 37,444 | 7,542 | 4,984,971 |
| 4,984,971 | 44,986 | 37,387 | 7,599 | 4,977,372 |
| 4,977,372 | 44,986 | 37,330 | 7,656 | 4,969,716 |
| 4,969,716 | 44,986 | 37,273 | 7,713 | 4,962,003 |
| 4,962,003 | 44,986 | 37,215 | 7,771 | 4,954,232 |
| Pre-EMI Loan Structure | ||||
| Sanctioned Amt: Rs 1 crore, Disbursed Amount: 50 lacs, Rate=9% p.a. Loan Tenure: 20 years | ||||
| O/S at the beginning of the month | EMI | Interest | Principal repayment | O/S at the end of the month |
| 5,000,000 | 37,500 | 37,500 | – | 5,000,000 |
| 5,000,000 | 37,500 | 37,500 | – | 5,000,000 |
| 5,000,000 | 37,500 | 37,500 | – | 5,000,000 |
| 5,000,000 | 37,500 | 37,500 | – | 5,000,000 |
| 5,000,000 | 37,500 | 37,500 | – | 5,000,000 |
| 5,000,000 | 37,500 | 37,500 | – | 5,000,000 |
| Bajaj Housing Finance myEMI Home Loan | ||||
| Loan Amt: 50 lacs Interest Rate = 9% p.a. Loan Tenure: 20 years | ||||
| O/S at the beginning of the month | EMI | Interest | Principal repayment | O/S at the end of the month |
| 5,000,000 | 42,500 | 37,500 | 5,000 | 4,995,000 |
| 4,995,000 | 42,463 | 37,463 | 5,000 | 4,990,000 |
| 4,990,000 | 42,425 | 37,425 | 5,000 | 4,985,000 |
| 4,985,000 | 42,388 | 37,388 | 5,000 | 4,980,000 |
| 4,980,000 | 42,350 | 37,350 | 5,000 | 4,975,000 |
| 4,975,000 | 42,313 | 37,313 | 5,000 | 4,970,000 |
Compared to Full EMI, you pay a slightly lower loan installment under Bajaj Housing Finance EMI.
Please understand I do not yet have a complete understanding of the Bajaj Housing finance myEMI product. There is not much information about this on the lender website. Had to rely on articles from websites of prominent business newspapers, which relied on the media release from the lender.
It is possible that the minimum EMI needs to be just 0.1% of the principal amount. In other words, there is no need for 0.1% principal repayment every month. The floor is on monthly payment. If that’s the case, Bajaj Housing Finance myEMI structure simply becomes a pre-EMI home loan. Much ado about nothing.
We will soon find out. If you are planning to apply for a home loan with Bajaj Housing Finance, do get these clarifications before signing up.