Question: I've been following your site for quite sometime now and I always find interesting facts. Today I was reading ‘6 Tax Saving Tips for Working Couples’ and found that for a joint home loan both of us can avail tax exemption. This is quite an information. Thanks a lot for sharing such details.

I have one more question regarding my home loan which is SBI Max Gain Home Loan, forgive my ignorance, as I am not aware of most of the details of the loan. Recently I applied for an online access to my Max Gain Home Loan account and was monitoring my loan account transactions. I've taken an ECS from ICICI account (my salary account) to SBI, my EMI gets debited on 15th of every month. I noticed that certain amount of money is showing up in available balance, I guess that is the OD amount sanctioned. As I am in need of some money I wanted to use that amount, before withdrawing that amount I visited the RACPC branch of SBI in Secunderabad and queried them about the money. They informed me that the purpose of OD is to have the available balance amount whenever needed and one can also park their surplus amounts into the account just like my savings account.

One thing is not clear to me, like how this will help me if I park my surplus amount, as I understand that will not affect my EMI? And I noticed a surprising thing, that is an amount X  is being debited towards interest payment on the last day every month from the available balance. I am not sure why this is happening, can you please explain the complete details of the SBI Max Gain Home Loan and this OD facility? I felt that the bank officials are also not quite aware of the complete details of this Max Gain Home Loan. Can you please help me with the details and also let me know about that interest debit happening along with my EMI every month. Awaiting your reply.

                      
Answer: Dear Ms Lavanya, SBI-Maxgain home loan is granted as an Overdraft (OD) facility  - it gives you added flexibility to operate your Home Loan Account like your Savings/Current account. Off-set home loans are generally priced higher than regular home loans.

This type of an arrangement serves to minimize your interest cost on your home loan. Every month when the loan EMI is paid, interest (at the applicable rate) is calculated on the aggregate principal outstanding after taking into account the balance in the linked current account. Therefore, you can park your temporary and permanent cash surplus funds (if any) in the SBI-Maxgain home loan account for the dual advantage of - reducing your interest outgo on the loan and at the same time deposit/withdraw from this Savings/Current account freely (whenever you require).

In this way, you can see that the principal gets paid off much quicker even where the money deposited in the linked current account is withdrawn later.

In case you do not use the linked-current account at all, the break-up of interest and principal will remain the same as a normal home loan.

Warm Regards,

Expert @ InvestmentYogi