Most home loan borrowers face the dilemma of whether to use their monthly savings to prepay their loan or set it aside for emergencies. In most cases, the extra money just sits in their savings accounts earning below par (and taxable) interest. A home saver loan lets you have the cake and eat it too. You will be able to park this amount in the home loan account for any number of days and pull it out anytime for your urgent needs or regular expenses when they become due (e.g., paying kids school fees every quarter). The money thus kept in the home loan account reduces the total interest outgo on your home loan and helps you close your loan faster.
MaxGain is a popular home saver loan product from SBI. Similar home saver loans, albeit with different interest rates, are also available from other banks including Citibank (Home Credit), Standard Chartered Bank (HomeSaver), HSBC (Smart Home) and IDBI Bank (Home Loan Interest Saver).
We will focus exclusively on SBI MaxGain in this article. Other home saver loans listed above are quite similar and may differ in minor details. Before we delve deeper into SBI MaxGain, let’s understand what is an overdraft (OD) account.
What is overdraft (OD)?
An overdraft facility is a credit line provided to individuals against their assets. You can think of it as being similar to a credit card with a limit but without the interest-free (grace) period. i.e., the interest clock starts ticking as soon as the amount is withdrawn instead of waiting until the payment due date. The interest rate on overdraft account is typically lower than credit card. You can withdraw money upto the sanctioned limit and will have to repay the outstanding balance along with interest only for the duration that you utilize the money from the account.
How is SBI MaxGain different from regular home loans?
SBI MaxGain is a home loan that is sanctioned as an OD with a limit that is equal to the approved loan amount. Your home acts as the underlying security for the OD account. This product has the same interest rate as the other home loans from SBI upto Rs. 1 crore (as of this writing). A premium of 0.25% is applied for home loans above Rs. 1 crore. There is no extra charge for use of OD facility. The current account (OD) comes with cheque book and net banking facility.
Home saver loans are suited for those individuals:
whose earnings aren’t constant – self-employed or businessmen.At a recent real estate expo, SBI told me that MaxGain isn’t available for the self-employed and businessmen.- who have a periodic (quarterly, semi-annual or annual) bonus or variable pay component that can be parked in the OD account.
- who have savings after paying EMI and other monthly expenses.
- NRIs and professionals with higher income.
How does monthly payment work?
A typical MaxGain account statement looks like this:
Description | SBI H L MAXGAIN AUG11 |
Name | Mr. FIRSTNAME LASTNAME |
Book Balance | -14,62,750.00 |
Available Balance | 1,00,366.00 |
Limit | 15,63,116.00 |
Uncleared balance | 0.00 |
Drawing Power | 15,63,116.00 |
Currency | INR |
Rate of Interest (% p.a.) | 10.3% |
Lien Amount | 0.00 |
Here are a few points to help understand the how monthly payment works:
- Upon final disbursal, your Limit and Drawing Power will equal the sanctioned loan amount. These amounts will reduce with each EMI payment.
- Drawing Power = Outstanding principal loan amount.
- Available Balance = Any surplus amount parked in this account + accrued interest savings. More on this below (Point 5 thru 8).
- Book Balance = Drawing Power – Available Balance. This is shown as a negative (minus) amount.
- Your monthly EMI will not vary despite surplus amount in the OD account.
- Principal portion of the EMI is applied on the date of EMI payment and goes to reduce the Drawing Power and the Limit. The principal portion of the EMI is calculated as per the original amortization schedule. Surplus amount deposited in the OD account and accrued interest savings do not alter the principal portion of the EMI.
- Interest portion is calculated against the Book Balance on a daily basis and is debited at the end of the month.
- All surplus money parked in the home loan account goes towards Available Balance. Even if the surplus amount is kept only for a few days during the month, it helps reduce the interest component of the EMI for that month. Since the interest is calculated on the Book Balance instead of outstanding principal, any excess amount (i.e., EMI – Principal – Interest) is added to the Available Balance.
Here’s a comparison of amortization schedule (first 24 months only) of regular home loan and SBI MaxGain:
We will assume that both home loans have the same principal amount, interest rate and tenure. As you can see from the schedule, the borrower does the following deposits into (and withdrawals from) his SBI MaxGain account during the first 24 months:
- Deposits a surplus amount of 2,00,000 at the beginning of month-6
- Withdraws 1,00,000 in month-12 for his kid’s school fees
- Withdraws 1,00,000 in month-17 for family vacation
- Gets a salary hike and starts depositing 20,000 each month from month-18
- Withdraws 1,20,000 in month-24 to pay his kid’s school fees
Although the borrower has withdrawn all the surplus money that he deposited at the end of month-24, he still has interest savings (Available Balance) of 19,529.72. You cannot achieve such results using the regular home loan.
SBI MaxGain Excel – Daily Interest Calculation
Regular Home Loan | SBI MaxGain Home Loan | |
1 | EMI includes two components: Principal and Interest. The principal component increases and the interest component decreases with each successive payment. EMI remains constant throughout the loan tenure. | Same as regular home loan. |
2 | Principal and Interest components are calculated as per the original amortization table. | Principal component is calculated as per the original amortization table. The Drawing Power is reduced by the principal amount of the EMI each month. Interest component, however, varies depending on Book Balance. |
3 | Interest is calculated on the outstanding principal loan amount (as in the original amortization table). | Interest is calculated on the Book Balance on a daily basis and is debited at the end of the month. Excess amount from the monthly payment (i.e., EMI – Principal – Interest), if any, is applied towards the Available Balance. |
4 | Principal and Interest components are applied on the EMI payment date itself. | Principal is applied on the EMI payment date itself whereas Interest is debited at the end of the month. Until then, the entire interest portion is shown as part of the Available Balance. |
5 | Cannot be used like SB or current account for outgoing transactions and bill payments. | You can use the home loan account to do funds transfer (NEFT, RTGS etc.) and bill payments using cheque book and net banking facility. Available Balance is the limit for such transactions. |
6 | Home loan is closed when the outstanding principal amount is zero. | You can approach the bank to close your home loan when the Book Balance reaches zero. |
Pre-payment vs Parking Surplus Funds
Pre-Payment (in regular home loan or MaxGain) | Parking Surplus Funds in SBI MaxGain | |
1 | Reduces outstanding Principal Balance. | Increases your Available Balance and reduces your Book Balance. |
2 | Your amortisation schedule changes. You can opt to reduce either your loan tenure or loan EMI. 1) If you opted for lesser loan tenure, then more of your future EMI goes towards Principal. 2) If you opted for lesser EMI, your future EMI (and consequently your principal and interest portions) will reduce. | Your amortisation schedule remains unchanged. However, more of your interest portion goes towards Available Balance. |
3 | The money is gone forever. You cannot undo this action. | You can withdraw the surplus amount at any time. Your amortisation schedule remains unchanged. Now, less of your interest portion goes towards Available Balance. |
4 | Tax deductible under Section 80C. | Interest savings are not tax deductible. |
Advantanges of SBI MaxGain
Liquidity
If you make partial prepayment on your home loan, that money goes to reduce the outstanding principal and is not available to you anymore. However, any surplus funds parked in MaxGain home loan account can be withdrawn anytime.
However, surplus fund deposited before full disbursal or for under construction property cannot be withdrawn until complete disbursal. Your interest outgo will reduce because of this deposit and interest saved will get added to available balance, but you cannot withdraw till you get possession.
Interest Savings
If surplus funds are parked in the OD account, it saves interest outgo on the home loan. Helps you close the loan faster.
Better yield than other deposit / investment products
Interest saved is interest earned . Experts recommend this product over other investment products including tax free bonds and FD.
Instead of opening a Fixed Deposit (FD) for 1-5 years, if you park the same funds in the OD account, you will get 1 to 3% higher savings. Note that you will be realizing this rate even if you park your funds temporarily unlike FD where you will pay a penalty for premature withdrawal. On top of that the savings with MaxGain are tax free.
Tax deduction
Any amount that you deposit to Maxgain will not be treated as “pre-payment” under Section 80C. Hence, that amount does not qualify for Section 80C rebate. Experts advice that you should only park amount over and above the tax deductible interest portion. Interest saved (as shown under Available Balance) is not tax deductible under Section 24.
Really appreciate the detailing done to help understand the product. I am still unclear whether the standard tax benefits on Home Loan (besides 80C) would apply? separately, I wanted to understand the threshold amount to be kept for the product to be beneficial. Could you please share the sheet?
1) Tax benefits under Section 80C (Principal component) and Section 24 and 80EE (Interest component) still apply. Only the interest saved (as shown under Available Balance) is not tax deductible.
2) There is no minimum amount for surplus funds. You can keep any amount for any number of days. Interest is calculated against the Book Balance on a daily basis at the end of the month. You pay more interest during the initial years of your loan tenure. Depositing surplus funds during that period helps you save more on the interest outgo.
3) I am not fully satisfied with the excel sheet yet. I will make some minor tweaks and then share it at the bottom of the article. Request you to please check back in a couple of days.
That was a very detailed article i have ever read about SBI MAX gain – Thanks a lot Poornima for explaning this in such a clear language. I have one question here – After how many year one can change the tenure / EMI in SBI MAX Gain account. I believe 2 year correct me if i am wrong.
Please read the T&C of all SBI Home Loans here: https://www.sbi.co.in/webfiles/uploads/files/1377606055343_HOME_LOAN_MITC.pdf
Hi , madam
please explain whether bank will provide provisional Interest certificate on Home loan under maxigain scheme(OD) ,,,One of your officer says you cannot claim interest on home loan under this scheme in Income tax returns..
please expalin.. Last year they gave a provisional interest certificate ,,, This year they say they cannot give such certificate… Since my son gave such certificate last year to his Employer( CTS ).. Now downloaded the interest certificate of last financial year… I could not get provisional int certificate from the net banking of SBI what to do>???
Dear Madam,
I know that Interest is calculated against the Book Balance on a daily basis. suppose my interest is 9.4 % for annual,then in that case my daily interest should be (9.4/365)%. What is the scenario in case of Leap year? whether it will be (9.4/366)% or (9.4/365)% only ?. From my observation i cam eto know that SBI is taking (9.4/365)% for leap year, then in that case one day interest is lose for the people who pays the EMI. Please clarify on this.
Hi , i availed Home loan from SBI ..They sanctioned Rs 22 L under maxigain home loan (as OD account).. ROI 9.5% emi 18460-00P M ..I HAVE A DOUBT ????
WHETHER THE INTEREST PORTION CAN BE CLAIMED UNDER 80CC AND WHAT ABOUT THE PRNICPAL AMT PAID ? WHETHER IT CAN ALSO BE CLAIMED AS CONCESSION UNDER it ACT
E N SANKARAN
Most of the time we give check of fix amount to bank for EMI. Lets take values of your example.
EMI in your case is 29,149.69
So lets say. we provided them 20-30 checks for EMI and after 2-3 months we put some surplus amount.
So how will bank reduce intrest amount due to this surplus, from check?
Like I have stressed twice in the article, EMI will remain constant throughout the tenure. SBI will take the full EMI from you irrespective of the surplus amount. Instead of reducing the interest amount from the checks, that excess amount will be added to your Available Balance.
This was a very useful resource. Can you please share the excel sheet that you have used in above example?
Its now available for download. Please read the disclaimers before using the excel.
I took 29lac loan from Max gain (1 year back) and my EMI is coming as ~29000 for 20years with Interest 10.25. Recently I put 7lac as prepayment. I am confused regarding how much Tenure will be reduced?
I calculated it as 10years as to match my EMI I reduced the tenure, and so on (jagoinvester website, but I am not sure).
Please help.
Was it pre-payment OR parking surplus fund in your account?
If its pre-payment, then what’s the month you started paying EMI and the month of pre-payment?
Thanks for reply..
I am not sure about parking surplus fund..I just online transferred to OD account…My EMI started from Aug-13 and I transferred 7lac in Jan-14…After money transfer, my Book balance is showing approx -22lac and Available balance as approx 7 lac
This is exactly what I have explained in this article. This isn’t pre-payment. You are parking your money in the account.
I have added another table explaining the difference between these two actions within the article now.
Hi Poornima,
Thanks for the nice article.
I don’t know if I got it correctly but I didn’t find example for pre-payment in excel sheet. Can you please add pre- payment example also in your excel sheet so I can understand its effect on total outgo on loan vs parking surplus amount in Max gain account.
Thanks in advance.
if i am parking 7 lac in the account , Will the principal come down by 7 lac and hence the interest charged will decrease ? Or will the number of Emis decrease ?
Forgot to reply to your original question. Assuming you do not plan to withdraw your 7 lacs ever, your Book Balance will become zero around June-2024. You can then ask the bank to close your home loan account.
Thank you Poornima for your answers..It helped a lot..
One more question Poornima…
Which one is benificial, to Prepay or to Park surplus money(assuming, I do not want to use that money in future), in terms of reducing tenure of loan…
In my case, can I further reduce Loan tenure if I prepay the loan.
Can you add 1-2 examples of Prepayment also in above screenshot of your excel sheet….
Thanks for your help…
Hi Poornima,
thanks for you valuable comments.
Can please reply for above nikhil’s question?
It will help me
Thanks & Regards,
Amit Biradar
I have taken a 45 l loan from Sbi(Max Gian) for an under construction property. I have opted for full emi option from Day1. Can you explain how would it work as in how much of the EMI would go towards interest and how much towards principal (assuming 20% disbursal every 4 months). Also after I get possession (full amount is disbursed) how would the statement look like
When you choose full EMI, your interest portion is calculated on the disbursed amount and the rest is counted towards principal. Your EMI, however, will remain constant. Hope this helps.
Hi Poornima,
Thanks for the detailed information , As a home loan seeker it is going to help me a lot. I had one question .
I have booked an under construction property for which I take the SBI Maxgain Loan , I will be getting the possession in next 30 months. With this Loan product should I go for a Pre Emi or Full EMI .
Please suggest.
Thanks & Regards
Himanshu
Please read this detailed answer: https://emicalculator.net/pre-emi-vs-full-emi-understanding-payment-schemes-for-under-construction-properties
Hi Poornima, Your article has been very helpful. I have SBI Maxgain on pre-EMI for under construction propert and I am paying interest only. I have some cashflow and want to reduce the interest amount. Two options which I have:
1. Converting pre-EMI to full EMI option (as you suggested). Hence start paying the EMIs every month.
2. Keeping pre-EMI option but keep depositing EMI into the loan account by myself.
I feel both options are almost same. In both cases, I can NOT withdraw the deposited amount and interest charged in both cases will remain almost the same.
However in option 2, the amount deposited will become ‘Available Balance’ after possession and I will be able to withdraw that. Hence option 2 looks better.
Am I thinking correctly Or missing any point?
Hi Poornima,
A good explanation, still I have some doubt and confused.
I am buying property with completion time of 5yrs and wanted to take loan of 60 Lakhs.
So want to know if MaxGain SBI has option of pre-Emi or not, as project is long i want to start EMI after 2 or 3 years?
I came to know that in SBI if we start with pre-EMI after 1.5 years automatically they will start taking EMI. Is it true?
Regards,
Arvind
Please check with the bank regarding their T&C. Pre-EMI option is available with SBI MaxGain. You should know the pros and cons of pre-EMI vs full EMI before making the right choice: https://emicalculator.net/pre-emi-vs-full-emi-understanding-payment-schemes-for-under-construction-properties
Hi Poornima,
I have currently taken my home loan as SBI saral(or surakshit) home loan. Can I convert that to Max Gain? If yes then whats the procedure for that?
Please check with your loan servicing SBI branch. It should be possible if you are a salaried employee.
Hi Poornima,
I have taken loan of Rs 27.74 lacs for my second property which is under construction from SBI Max Gain in Jan 14. My EMI is coming to Rs 62396/- starting from Jan 14 itself for a period of 56 months. I will be getting possession of the house in Dec 2016. I would like to park some surplus amount (say 2-3 lacs) in my OD acct. My queries are as under:
1. Can I take the surplus amt parked plus interest accrued after final disbursement of loan as per developers schedule (ie Jan 2016) or should I have to wait till possession of the property.
2. Similarly for claiming 20% IT rebate on the interest portion for the period under construction, should I have to wait till possession of the house or can I claim it immediately after final disbursement of loan.
3. What will be the ideal amt to be parked in the OD acct to avail maximum advantage in my case.
Regards
Mrs Rehna Ghosh.
Why would you allow the bank to disburse the full loan amount even before gaining possession of the property?
Hai Poornima,
Thanks for the prompt reply.
As per payment schedule given by the developer, the final installment (i.e.sixth) of 5% cost of the flat (i.e. 5% of 57 lacs) is to be given 3 months before possession. However I expect there may be some delay in that, hence my query. The schedule has been submitted to the bank and they will release the payment accordingly.
Please advice.
Regards
Rehna
hi poornima i have a small doubt when we receive the amount from the home saver loan closure account the amount received is taxable or not?
Regards
KK
If you are asking about withdrawing available balance amount, then it is not taxable. Its your money being returned to you.
Here are my answers. You should cross check with SBI & your tax adviser.
1. Yes, you should be able to withdraw surplus deposit after final disbursal.
2. Please read these articles:
http://www.livemint.com/Money/pXyy4ratXc9MeW5m06JYdK/Tax-deduction-available-on-home-loan-only-after-possession.html
http://articles.economictimes.indiatimes.com/2012-10-11/news/34387368_1_loan-amount-harsh-roongta-loan-repayment/2
3. The more you park, the more you save on interest outgo. Make sure you won’t need that money before final disbursal.
My Maxgain account tagged along with my SB account does not provide me any option of transferring amount from it to any other account, even the SB acct. Am I missing something??
If the loan has been fully disbursed, then you can request SBI to enable this feature.
Hi Poornima ,
I am currently running with SBI MAXGAIN home loan from last 2 years. My total home loan is of 16,84,000 Rs on which i am paying EMI of 16202 from the date of disbursement . My concern is that , few days i enquired about provisional certificate of 2013-14 from SBI And as per bank statement my principle amount deducted is only of 15,268 K and Interest is 1,23,000. Could you please educate me as how they are calculating this figures as i think principle amount deduction is too low for the whole year. Also their was about 1.5 L money available in my max gain account .
Generally you pay less in principal and more in interest at the beginning of loan tenure.
However, its difficult to provide full explanation without looking at your transactions because interest is calculated on a daily basis.
Hi Poornima,
This is very useful information to understand MAX gain Loan. Thanks a lot for your efforts. Can you please share the excel sheet pasted above.
Hi Poornima,
I am in US now, My Book Balance shows zero now, Do I need to pay the monthly EMI ? If yes then what is the advantage
You either pay the monthly EMI until your Drawing Power reduces to zero or explicitly ask SBI to close the loan by adjusting the available balance against the outstanding loan amount.
If you continue to pay EMI, then the twin advantages are:
i) you can withdraw your money anytime you want &
ii) tax deduction benefits
Dear poornima thanks for explanation. I have query that in the year 2011 sbi disbursed 8,20000/ to me . I am repaing emi 8300/- per month still 6,20000/- outstanding bank is showing. How I can be benefitted by SBI MAX GAIN HERE. I HAVE IN REGULAR SCHME
The excel is now available for download. Please read the assumptions and disclaimers before using the excel.
Hi Poornima,
Great job done.
Please can you modify the excel sheet for loan disbursed by SBi not in one go but in installments (say 6 installments) over a period of say, 3 years.
Rehna, Take a screenshot of your SBI MaxGain transactions / disbursals (mask sensitive account information) and send it to poornima@emicalculator.net. I will try to plug that data into the excel and send it back to you so that you can use it going forward. Also let me know if you have opted for full EMI or Pre-EMI.
Hi Poornima,
Pl refer to our discussion on emicalculator forum
As advised by you I forwarded the screen shot view of my SBI OD acct to your mailing address since I dont know how to att the same along with this reply. I have opted for full EMI, period- 56 months starting from Jan 14.
Pl advice futher action.
Regards
Ajay
Hi Poornima,
Hope you got my mail along with the screenshot and also reply send earlier. Eagerly waiting for your advice and reply.
Regards
Ajay
I need your account information too. This screenshot should show Book Balance, Available Balance, Limit, Drawing Power etc.
As advised I have forwarded the screen shot to your mailing address. Waiting for your advice and reply.
Regards
Ajay
@rehna:disqus, Did you have any other fees & charges: loan insurance, conversion fees etc.? If yes, what was the amount? Was there a moratorium period? I am assuming your loan amount is exactly 27.74 lakhs.
Thanks Poornima
Hi Poornima,
This is indeed one of the best explanation of Maxgain from SBI. Even SBI’s own website does not throw any light on this product.
I have a question here if you help find an answer:
I have the Home Loan Maxgain with SBI. Now I am in USA and want to pay off the full amount. As i understand from your article, the monthly EMIs will not stop even if the Book Balance = 0. Is that true?
What should i do to close this loan off when the Book Balance =0. Do i have to contact the SBI branch personally or a POA can act on my behalf?
Your inputs are highly appreciated.
You will need to request SBI to close the loan. Regarding POA, you should check with SBI.
I forgot to add one more question:
1. If the Book Balance = 0 and still the EMI are ON, i would have surplus amount in the Maxgain OD account. Will SBI pay any interest on this surplus amount?
No, SBI will not pay interest on the excess amount.
Hi Poornima,
Thanks for the wonderful explanation. This gave me very clear understanding about the loan product.
It will be extremely helpful if you share the excel sheet that you used. The data in the sheet is very informative. 🙂
I have not come across any drawback of Max Gain anywhere. So Can I assume it is good in all ways and proceed for it?
Awaiting your valuable feedback.
The excel is now available for download.
Thanks Poornima.
I was just filling rough values appropriate to us (Principal, how much we can park etc) in the sheet.
When I tried with 25 years tenure and 30 years tenure with all other parameters remaining same I observed the following:
1.Difference in EMI in two cases=1400
2.Difference in Total Interest Paid in two cases = 1L
3.Book Balance becomes zero in 9 years 3 months for 25 year tenure and 9 years 7 months for 30 year tenure. I will be effectively paying interest for 4 additional months in case 2.
My conclusions:
I will be paying additional 1L interest if I opt for 30 years.
If opt for 30 years tenure, my monthly EMI will come down. But if I keep the remaining surplus in OD, it is as good as repayment.
Can you please throw light on the pros and cons of extending loan tenure. Is it a good idea to go for the maximum tenure or is it good to close the loan as early as possible?
Please help me out in choosing the tenure wisely.
Thanks in advance
Extending tenure increases the interest outgo. Even then, I would prefer to extend the tenure so that the EMI amount is less and I won’t have to struggle to make EMI payments in case of emergencies. If extra money is available at hand, I can always use it to close the loan sooner.
Dear Revathi,
I find something wrong in your observation. I had taken an example loan amount of Rs 39.5 Lakhs and ROI as 10.15%. If the tenure is calculated as 15 years then the EMI would be Rs 42810.11. If the tenure is calculated as 20 years, then the EMI would be Rs 38,511.74. So the monthly EMI difference is Rs 4298.37. Let us assume that I choose to go with tenure as 20 years. But I choose to repay Rs 42810.11 every month. ie, as my tenure is 20 years, every month I pay an EMI of Rs 38,511.74 and additionally I make a surplus payment of Rs 4298.37 every month in the MG OD account. If I continue to do this every month, at the end of 180 months (ie, 15 years) my book balance becomes zero and my available balance would be Rs 18,06,288. Now I have two options, one is to close of the loan and the second option is to use this liquidity for further investment. Where as if I had opted for Tenure as 15 years, I would have had only option 1, ie, to close of the loan at the end of 15 years. So I believe in MG, it is always better to go with the max possible tenure. And inspite of the tenure that you choose, for a fixed monthly repayment, your yield would be same.
Dear Poornima,
Kindly review and confirm whether my above understanding is correct. I shall mail you the excel that I used for this calculation. Your timely help would help me a lot as I am in the middle of transferring my loan to SBI for the benefits of MG and I have to confirm the tenure to the bank ASAP. Kindly help.
Thanks in advance.
Hi Chenthil,
Thank you for your reply !
Hi Poornima – Thanks for the detailed explanation. This is extremely useful to understand this product. I notice one minor error into attached excel sheet. Please correct me if my understanding is wrong. In month 7 under maxgain calculation, the available balance should be Rs. 2,03,366.67 NOT 2,01,683.33 as excess amount (i.e., EMI – Principal – Interest = 29,149.69 – 4,100.82 – 23365.54 = 1,683.33) should be added to the Available Balance as per your explanation. In same way, it will change to subsequent months. As such, after 24 months, Available Balance should be Rs. 42797.99 NOT Rs. 19,529.72. In this way, book value should Rs. 28,53,965.69 NOT Rs. 28,77,233.96 at the end of 24 months. Hence, you could close the loan faster.
Can you please see if my above understanding is correct? Please respond asap as I am trying to do a BT from one bank to this but want to be 100% sure on advantages.
Regards
Rajeev
Request you to read the article text (below the attached excel screenshot) to understand the calculations. There’s surplus deposits and withdrawals (red amounts within parenthesis) and the interest is calculated on the remaining balance.
Dear Poornima,
Could u pl fwd the link to the article and also the excel sheet for calculation. I am not able to locate the same.
Rgds
Rehna Ghosh
I am talking about this article and the screenshot included in this article.
Is the interest earned (and subsequently adjusted against the interest payable) taxable?
There’s a subtle difference. It isn’t interest earned, its interest saved. Hence its not taxable.
Hi Poornima,
In the Excel you showed that till month 6 Prinicipal and Interest is same. After keeping surplus of Rs 2L, the interest (as in interest column) is shown less than in normal loan. I assume that you have calculated interest by deducting the interest earned ( as seen in available balance). This means that for the customer total EMI (Rs 29149.69 in this case) remains same and saving on interest is indirect because available balance increased. please let me know this important point as I am planning shifting to Max Gain from HDFC.
Regards,
Himanshu
Your understanding is correct.
Hi Poornima,
I have a SBI Maxgain loan account and I have started paying the actual EMI (not the pre-EMI) but my property is still under construction. My question is before the final disbursement do I get tax exemption for that interest amount. Please let me know.
Thanks,
Sharath
Hi Poornima,
Very good explanations and working. I have a doubt.
Under Max gain, Interest component of EMI is going down based on surplus fund and available balance. Does it mean, to that extent we loose the income tax benefit (Interest on housing loan). My property is let out property.
Here’s an excerpt from the tax section of the article: “Experts advice that you should only park amount over and above the tax deductible interest portion.”
Hi Poornima
Can you explain this with an example. Iam still not clear
the effective cost of the loan is Interest Rate * (100- marginal tax rate).
since you can claim 100% tax deduction. Hence the effective cost of your loan will be in the range of 7-8 % depending on your tax bracket.
Use max gain for long term parking of funds only if you cannot get a better post tax return. I would prefer to invest in yearly FMP/tax free bonds and make the additional 1-2% and pay only the minimum balance required.
Can I also prepay against my principal in a max gain account, over and above the surplus fund and permanently reduce the tenure. Do we have this option in max gain
You can make prepayments against the principal amount. You will have check with your bank regarding the process for the same.
Hi,
I have a doubt.
Recently I have taken HL for 29Lakh, and I am not sure whether its SBI MaxGain or not. So, how to figure out whether its MaxGain. And if its not Maxgain then how convert it to Maxgain, And please note that though I have SBI saving account, but my EMI is being paid from another bank (salary acccount)..
Thanks.
The easiest way to find out is to ask your bank representative.
I parked some amount from my savings account ( from which the EMI is usually deducted ) into my MaxGain OD account. My EMI is usually deducted the 10th of every month and I made the transfer on 3rd. The account statement for the loan account shows that the credit happened on 3rd but the “Available Balance” for the MaxGain OD account still shows up as 0. why is that ? If I park amount X in the OD account, I thought I can take it back anytime. Is that not the case ?
Please send the account and transaction information to poornima@emicalculator.net. Let me know the total loan amount and tenure as well.
Normally the bank debits the interest for the month to the Max gain account on the last day of the month. This will result in a increase in the amount outstanding till the EMI is paid. Check the entry on the last day of the month with the narration “Debit Interest”.
If your interest amount is less than the amount that you have transferred, you may not see a “Available Balance” since this is offset by the Interest Entry. Even if the amount you have transferred is more than the Interest Amount, the “Available Balance” will be equal to the difference.
I feel there is a bug in the spreadsheet. I see that total of principal and interest component goes on decreasing if I make a regular contribution of some amount.
Overall a very good sheet and it did motivate me in trying to shift my loan to SBI. Very nice and useful article. Thank you very much.
Thanks for the nice words. Glad this article helped you.
I am actually working on a new spreadsheet (with daily interest calculation) based on information that is being sent by the readers. There’s a lot of permutations and combinations (Pre-EMI, Full EMI, Partial disbursement, Surplus & No-Surplus, Moratorium period etc.) that is difficult to calculate without seeing real data.
Hello Poornima
I think I have found the bug now. The sheet is using the principal being paid on the non Max gain section for the particular month as the principal for the Max gain section too. refer cell(g24) =IF(M23<0,C24,0).
This is not correct. The value for cell(g24) should be equal to EMI paid – interest component (example : Cell(g24) =C$14-H24).
I have replaced the formula =IF(M24<0,C25,0) with C$14-H24 for the cell g(24).
Here the assumption is – the EMI paid will remain constant and interest will be charged on the outstanding amount. So what ever extra is being paid will go towards Principal.
Please do not take this in any negative way.
And thanks again for this wonderful IDEA 🙂
Regards
Rajeev, That is not a bug…that’s a feature of MaxGain. Request you to re-read the article. The Principal amount is deducted as per original schedule and is not impacted due to availability of surplus funds.
Interest is charged as per Book Balance (i.e., Drawing Power – Available Balance), Principal as per original schedule and the rest gets added to the Available Balance.
Now it is very clear to me. Thank you so much for taking time to explain this.
Regards
Rajeev, try adding the difference in Available Balance to the Interest & Principal amount under the SBI MaxGain section. i.e., EMI = Interest + Principal + Delta in Available Balance.
Thank you again. Now I am in the process of transferring the loan.
Regards
Dear Poornima,
As advised, I had forwarded my OD account screen shot view to your mailing id. Kindly go through it and advise.
regards
@rehna:disqus, did you have any other charges & fees: loan insurance fees, conversion fees etc.? I assuming your total loan amount is exactly $27.74 lakhs. Was there a moratorium period on this loan?
I am sending you emails, but it looks like you aren’t receiving it.
Dear Poornima,
No other fees have been paid. The total loan amount is exactly Rs 27.74 lacs. No moratorium period. RegardsRehna
Subject: Re: New comment posted on SBI MaxGain – Why should you choose this home saver loan?
Dear Poornima,
No other fees have been paid. The total loan amount is exactly Rs 27.74 lacs. No moratorium period.
Regards
Rehna
Rehna, please send another screenshot of your account summary (with drawing power, available balance and book balance) after EMI credit on 15-Mar. This will give me a clear picture of principal deduction for partial disbursements. Thanks for your patience.
Dear Poornima
As advised by you, Screen shot view after payment of EMI on15 Mar 14 has been send to your mailing address. Pl advice.
Regards
Rehna
I have send you a reply this morning. Please check and respond.
Hi Poornima,
I havent got your reply yet in my mail. May I request you to resend it.
Sorry for the trouble.
Ajay
I have resent 3 emails to your email address. Please check all three and respond.
Hi Poornima,
I dont know why i am not getting the emails which u are sending. I hve checked my inbox, thrash, Junk everywhere. My alternate mail id is ajayrehna@gmail.com.
May i request to send it to this mail id with copy to my earlier id ajay_rehna@hotmail.com.
Really sorry for troubling you.
Eagerly waiting for the advise
Rehna.
Hi Poornima,I dont know why i am not getting the emails which u are sending. I hve checked my inbox, thrash, Junk everywhere. My alternate mail id is ajayrehna@gmail.com.May i request to send it to this mail id with copy to my earlier id ajay_rehna@hotmail.com.Really sorry for troubling you.Eagerly waiting for the adviseRehna.
Subject: Re: New comment posted on SBI MaxGain – Why should you choose this home saver loan?
Hi Poornima, after reading your article, now I am thinking of migrating my loan to this scheme. I have a question for you. In this scheme, is there any restriction on transfering some portion of available balance towards the prepayment of the principal..? Because, Parking of funds in Available balance will reduce the future interest and enable me to draw that in future. However, it will not give any income tax benefits under section 80C. If i am transfering some portion of the available balance towards the principal repayment, i can get interest reduction, 80 C benefit but i need to compromise the option of drawing the amount in future. Thats okay for me.
Prepayment is also possible with MaxGain. Please check with SBI regarding the process to be followed.
Thank you so much