The new scheme, called QuickPay, involves paying higher installments in the initial years, which may not suit everyone.
Axis Bank has launched a new home loan repayment product called QuickPay. This is a new way to pay back your housing loan. Does it benefit you? Let’s see.
What is it about?
We know that when we take a housing loan, or any loan for that matter, we need to repay the loan in installments, more commonly known as equated monthly installments (EMI).
As the name suggests, all installments paid through an EMI system are equal. But Axis Bank's QuickPay offers an alternative way to repay your loans. Here, the monthly installments change every month, as the interest component of the installment goes down with every passing month.
To be sure, every EMI has two components; the principal and the interest. For most loans, while the interest component of the EMI goes down over time, the principal component increases in a way that your monthly installments remain the same.
QuickPay is different. Here, the principal component remains the same but the interest component goes down every month. Under this scheme, you can borrow a minimum of Rs 3 lakh and a maximum of Rs 5 crore.
The rate of interest for this scheme is between 9.05-9.25 percent for salaried individuals, which varies as per the borrower’s profile. The interest rate is 20-40 basis point higher that that of a regular home loan, which is 8.85-9.05 percent at Axis bank.
What works?
Going by calculations that Axis Bank gave us, the interest outgo for the tenure of the loan decreases if you opt for a QuickPay loan. Let's assume you have taken a home loan of Rs 50 lakh for 20 years at an interest rate of 9.2 percent.
Under QuickPay, your total repayment amount (the sum that you will pay to the bank as principal repayment and interest) comes to Rs 96.19 lakh. For a traditional Axis Bank home loan (EMI system), you end up paying Rs 1.08 crore. For QuickPay loans, your interest outgo comes to Rs 46.19 lakh, whereas for the traditional loan, your interest outgo comes to Rs 57.96 lakh.
"This is an innovative home loan scheme from our bank that will reduce the overall interest burden of the borrower. The unique concept of ‘reducing monthly instalments’, along with savings on interest, will be an attractive proposition for home buyers," said Rajiv Anand, Executive Director (Retail Banking), Axis Bank.
What doesn’t work?
For QuickPay loans, your total interest outgo and the amount you end up paying back to the bank is lower, but there is a cost involved. Your outgo in the initial years will be higher than in the EMI-based system.
Axis Bank claims this is a new product, and that is true. But the fact remains that many banks also offer you the option of prepayment of housing loans that have almost the same effect as QuickPay.
Back of the envelope calculations show that if you choose to prepay Rs 1 lakh per year of your housing loan, say for five years, your total repayment amount comes to Rs 94.07 lakh. The total interest outgo comes down to Rs 43.93 lakh.
These are ballpark numbers, but if you’re willing to prepay your regular housing loan, it is possible to bring your costs down as well if you work around the numbers. Further, you end up repaying your loan in 198 months. This results in an overall saving of Rs 2.12 lakh for the borrower of a regular home loan, when compared to a QuickPay loan.
Moneycontrol take
"This home loan scheme (QuickPay) is not a path-breaking or new feature from the bank. Mostly, banks don’t publicise this feature but have the option in regular home loan schemes where customers can pay higher amount then EMI and can reset the repayment terms in loan agreement with bank accordingly," said Sukanya Kumar, Founder and CEO of RetailLending.com.
For a regular home loan, you have the flexibility to prepay the amount, but in QuickPay, you are committed to the higher outflow from start of the tenure.
"While taking a home loan, a borrower generally utilises her savings for down payment of the loan amount. So, in such home loan scheme it’s not advisable to take a commitment of higher outflow from start of the tenure," said Mumbai-based tax and investment consultant Balwant Jain.
"QuikPay home loans will suit those planning to continue with their home loan for the entire loan tenure. However, for borrowers aiming to make regular prepayments or foreclose their home loan before the original tenure, regular home loan might make a better proposition," said Ratan Chaudhary - Associate Director and Head of Home Loans, Paisabazaar.com.
Avoid QuickPay. If you get the cash midway through your traditional home loan and wish to prepay, check the prepayment charges and go ahead. Note that QuickPay is also a floating rate loan, whereby the bank will change interest rate periodically. Your loan installments will also change accordingly.
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