Sbi Maxgain Home Loan Disadvantages

In my previous post on Home Loans, I did a comparison of a 20 year and a 30 year home loans and explained how interest is calculated in a loan and the calculation involved while prepayment of the loan. We saw how prepayment helps in reducing the overall interest amount to be paid and closing the loan earlier than the actual tenure. But prepayment has its own set of disadvantages too. Let us understand the disadvantage of pre-paying a loan and how the SBI Maxgain loan account helps us overcome that problem.

In this post, I’ll be explaining the features a special type of home loan offered by the State Bank of India called SBI Maxgain Home Loan, and how we can use this effectively for maximizing the benefits while buying our dream house.

Drawbacks of prepaying a home loan: SBI Maxgain

In a typical home loan, the interest is calculated monthly based on the average outstanding principal for that month. When we make an extra payment to prepay the loan, the outstanding principal decreases, resulting in a lower interest amount for that month. While this can help reduce overall interest burden on the loan, there is a drawback to this prepayment method. By using extra funds to prepay, you lose access to that money and may face difficulties if you require urgent funds later on.

Suppose you have a home loan with 20L principal remaining, and you got 10L as bonus from your employer. If you want to reduce your overall interest on the home loan, you can easily put that money into the loan account and reduce your principal amount by 10L, hence, reducing the interest component. But this comes at a cost. Say, you happen to need 10L for a medical emergency, you would have to arrange those 10L by some other sources. If there was a way you could take the prepaid amount back from the bank in such a case, wouldn’t that be awesome?

The SBI Maxgain home loan can be a lifesaver in certain situations, functioning as a Super Loan. Understanding the workings of this Maxgain Loan account and how to make the most of it when applying for a home loan is crucial.

What is the SBI Maxgain Loan?

Well, SBI Maxgain is a Home loan product offered by the State Bank of India which is sanctioned as an ‘overdraft’ loan. The USP of this type of home loan is that it allows you to avail the benefit of prepayment without compromising with the liquidity. We can say it is the mixture of a loan and a normal savings account, as it offers you selected benefits from both the accounts. You get the loan to buy your dream home and pay it in EMIs, and you get a ATM/debit card and checkbook with this account just like a savings account. You can also transfer money to other accounts via NEFT, IMPS, RTGS, UPI using this account.

If you have received a substantial amount of money, such as a bonus from your employer or through other means, you can deposit it into your SBI Maxgain loan account. This will help reduce the remaining balance on your home loan during the time that the extra money remains in your account, resulting in lower total interest charges for that period. Furthermore, if you require access to the funds at a later date, you have the option to withdraw them from the account. Once withdrawn, the interest calculation will revert back to its normal process based on the total outstanding principal amount.

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In the SBI Maxgain home loan account, the interest is calculated based on the remaining principal amount minus any additional funds deposited in that account. Although these extra funds do not directly reduce your outstanding principal, they provide a prepayment benefit by saving you interest on this amount.

Sbi Maxgain Home Loan Drawbacks

Here comes my favourite part: The maths. Well, let us see a sample calculation involved in the SBI Maxgain Loan. The calculation becomes a little complicated if you miss a tiny detail, so read carefully.

1. The monthly EMI is deducted from your savings account and added to your loan account.

2. The remaining principal amount of the loan decreases each month by subtracting the interest calculated for the previous month from the EMI paid. This reduction in principal is similar to a regular home loan.

3. At the end of each month, the interest for that specific month is taken out from the loan account.

I have used the following for illustration: Principal amount : 50L Interest : 7.5% pa Tenure : 20 years With this specification of the loan, the EMI comes to be Rs 40,280. Also, let us assume that the borrower got a bonus of Rs 5L from his employer at the start of 2nd month which he kept in the loan account for 2 months and then took it out at the end of the 3rd month.

In a regular loan account, the amounts credited and debited are accumulated. In the first month, Rs 9,030 is deducted from the outstanding principal, followed by Rs 9,086 in the second month, and so on. Similarly, there will be an interest deduction of Rs 31,250 in the initial month and Rs 31,194 in the subsequent months. The total amount debited each month (including principal reduction and interest debit) equals the total amount credited to the loan account (EMI). This can be observed in the provided table for a typical home loan.

However, you may observe that the Maxgain home loan does not follow this pattern. In the first month, when the principal is reduced by Rs 9,030 and interest deducted is Rs 31,250, it adds up to the equated monthly installment (EMI). But in the second month, with a principal of Rs 9,086 and interest of Rs 28,068, it does not equal the EMI. So where does this difference go? The difference actually remains in the Loan account as a credit. Using our example above, there will be an excess amount of Rs (40,280 – 9,086 – 28-068) = Rs 3

Suppose, you take a SBI Maxgain home loan of Rs 50L for 20 years and happen to receive a sum of Rs 50L through a lottery or by looting a bank. Well, you can put those 50L in your Home loan account and enjoy liquidity of up to 50L (depreciating every month) for those 20 years. Isn’t that great? 😎 Let me list out the advantages in a Maxgain Home Loan account.

Benefits of SBI Maxgain Home Loan Account

1. The Maxgain Loan account allows you to benefit from making prepayments while still having access to your extra funds.

2. With features like a checkbook, ATM/Debit Card, and the ability to use NEFT, IMPS, RTGS, and UPI services, this account can serve as your main bank account.

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4. You can even set up automatic payments for SIPs and other investments using mandates through this account.

That said, the Maxgain Loan account has some drawbacks also.

Is MaxGain a worthwhile investment?

This makes it more convenient for borrowers who may want to pay off their loans sooner than expected or make partial payments along the way without incurring any penalties. Additionally, not having any file or registration charges further reduces the financial burden associated with taking out a home loan.

Overall, the SBI MaxGain home loan scheme offers flexibility and cost-saving benefits for borrowers in India. It allows individuals to utilize their surplus funds effectively while minimizing unnecessary expenses related to pre-payments and administrative fees typically associated with traditional housing loans

Drawbacks of SBI Maxgain Home Loan Account

The interest rate for a Maxgain Home Loan is typically higher compared to a regular home loan. Initially, the difference was only 0.1%, but now it has increased to around 0.3-0.4%. Investing the extra amount in other options like Mutual Funds or P2P Lending could result in missed potential high returns. The benefits of PMAY CLSS are not applicable to SBI Maxgain Home Loan accounts, even if eligible. While purchasing an under-construction property, you can still deposit surplus money into the loan account, but cannot withdraw it until construction is complete. Additionally, no interest is earned on any amount exceeding the outstanding principal in the loan account.

Ways to lower the interest rate on my SBI MaxGain loan

By depositing money into your MaxGain account, you can enjoy the benefit of lower interest rates on your home loan. This is because the amount you deposit will be deducted from the total loan amount, effectively reducing the principal balance. As a result, you will pay less in interest over time and have the opportunity to save a significant amount of money.

The reduction in principal leads to a decrease in the overall interest charged by the bank. In our example above, assuming no other changes occur during repayment tenure and considering simple annual compounding, this could potentially save you around ₹80,000 per year (₹10 lakh x 8%). Over time, these savings can add up significantly and provide financial relief.

Tax implications of SBI Maxgain Home Loan

The tax benefits given in the case of SBI Maxgain loan account is exactly the same as that of a normal home loan account. The actual principal amount paid by you will be exempted under the Section 80C of the Income Tax Act. The interest paid is exempted under the Section 24 and Section 80EE of the Income Tax Act. However, one important point to note here is that only the principal amount which is actually reduced in an year is eligible for tax deduction, and not the extra surplus amount which you park in the account.

Is it possible to convert Maxgain into a term loan?

Once you have converted your MAXGAIN account into a term loan, any surplus amount that you have in your account will be deducted from the total loan amount. For example, if you have an extra 50,000 RS in your MAXGAIN account and decide to convert it into a term loan of 10 lakhs RS, then only 9.5 lakhs RS will be considered as the principal amount for calculating interest.

Additionally, by converting to a term loan, you will also benefit from receiving the latest interest rate available at that time. This means that if there has been any change in the interest rates since opening your MAXGAIN account or since your last review of rates, you will receive the updated rate on your new term loan.

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It is important to carefully consider these factors before making a decision to convert your MAXGAIN account into a term loan. Assessing how much surplus amount you currently have and comparing it with potential savings on interest rates can help determine whether this conversion would be beneficial for you financially.

Maximizing the benefits of SBI Maxgain Home Loan: Essential tips

2. Extend loan tenure: As mentioned before regarding ideal home loan tenure, it is generally financially beneficial to opt for a longer repayment period. Similarly, with SBI Maxgain Loan, selecting a longer tenure allows you to enjoy liquidity for an extended duration.

Is it possible to switch my SBI home loan to Maxgain?

Yes, it is possible to transfer your current home loan to SBI MaxGain. To do so, you need to speak with your loan manager and request the following documents: a complete loan account statement.

Summary

Well, to summarize, the SBI Maxgain Home Loan is an excellent product offered by the State Bank of India which makes it stand out of the home loan market in India. This can be of great help if you have a surplus amount left with you at the end of every month. Also, by using the loan account as your storage account for extra funds, you can save much more than what you would get as interest in regular savings account. Availability of SBI Maxgain Loan was the major reason I went to SBI for getting a home loan, and not any other private banks. Recently, other banks like Axis Bank ( Super Saver Home Loan ) and Bank of Baroda ( Home Loan Advantage ) have also started providing overdraft Home loans, but they have their own set of limitations (like axis super saver has a maximum possible tenure of 20 years, with extra 2 years in case of an under construction home).

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Hello! I am Gaurav, a professional in the field of software engineering and someone who has a passion for credit cards. I enjoy collecting reward points and cashbacks from credit cards, as well as sharing my knowledge on credit cards and personal finance.

Calculating SBI Maxgain interest

Interest on the SBI Maxgain Home Loan is calculated daily based on the Book Balance. At the end of each month, this interest amount is debited from your account. Any excess amount remaining after deducting the principal and interest components from your monthly payment (EMI) is then applied towards reducing your Available Balance.

The Principal and Interest components are immediately deducted from your EMI payment on its due date. This means that as soon as you make a payment, a portion goes towards repaying the principal amount borrowed, while another portion covers the accrued interest for that period.

What is the interest rate of Maxgain?

Under this facility, customers are given the flexibility to deposit any surplus funds into their Maxgain account, thereby reducing the outstanding principal amount and subsequently lowering the interest payable on the loan. The deposited amount can be withdrawn whenever required through various channels such as cheques or online transfers.

Which mortgage is superior for the long term?

Choosing between these two options depends on various factors such as financial stability and future plans. If you have stable income and can comfortably afford higher monthly payments, opting for a 15-year mortgage might be beneficial. By paying off your loan faster, you will save money on interest over time and own your home outright sooner.