Due to the low credit off take and a high risk of non-performing assets (NPAs) in lending to the corporate sector, banks and financial institutions have taken recourse to lending in the home loan segment, where the risk to NPAs is relatively lower, as compared to other loans. This has resulted in stiff competition in the home loan segment and forced lenders to introduce various innovations in their home loan products.
As banks cannot lend below their marginal cost, under the marginal cost of funds-based lending rate (MCLR) regime, they are offering benefits outside the rate regime. In order to attract customers, Axis Bank has introduced a new scheme called ‘Shubh Aarambh Home Loans’, which offers a waiver of 12 EMIs (equated monthly instalments).
Shubh Aarambh scheme: Who is eligible and what is the rate of interest?
This scheme is available for salaried, as well as for self-employed people. For the salaried, the tenure of the loan will extend to a maximum of 60 years of age and the rate of interest is 8.35 per cent (MCLR+0.20%). For the self-employed borrower, there is a relaxation of age and their loan can run till they turn 65 and the rate of interest is 8.40% (MCLR+0.25%).
Any person who takes a home loan for a minimum period of 20 years, is eligible for this scheme. The maximum tenure of the home loan can go up to 30 years. Although the minimum loan tenure stipulated for this scheme is 20 years, there is no restriction on part repayment of the loans, as long as the loan remains live for a minimum period of four years. This scheme is available under the floating rate regime only. So, if you have taken a loan under the fixed rate regime, you cannot switch to a floating rate regime to avail of this scheme. However, you can switch from one floating rate regime to another floating rate, if the bank is offering a better floating rate to new customers, by paying the necessary charges and remain eligible for the wavier of the EMIs.
Although home loans are generally extended to residents, as well as non-residents, this scheme is available only to a resident borrower. The loan can be taken for various purposes like buying a ready house, for booking an under-construction property or for renovation or extension of an existing house.
The documents to be submitted and the eligibility criteria for home loans under this scheme, are the same as for regular loans.
When and how are the EMIs waived?
The 12 EMIs will be credited to your account in a staggered manner, three times, with four EMIs in each lot, during the tenure of the loan.
So, if you have taken a home loan under this scheme, you will be eligible for a wavier of four EMIs, after completing 48 months from the date of disbursement of the home loan. So, after you have paid the first 48 EMIs, four EMIs will be credited to your account. You do not get a moratorium of four months on EMI payment but your account shall be credited with an amount equal to four EMIs and you will need to pay the regular EMIs on the regular date – i.e., 5th of each month, under this scheme. The second batch of four EMIs shall be credited to your account, on completion of the eighth year of the loan and the last four EMIs shall be credited on completion of the 12th year. Please note that the EMIs will not be credited, till any penal interest or any bank charges which are outstanding on the date of eligibility, are paid.
In case you have partly prepaid the home loan and have, thus, reduced your home loan EMI, the amount of EMI that will be waived, will be amount of EMI that is running when you completed the qualifying period of 4, 8 and 12 years, respectively. So, when it comes to deciding whether to reduce the tenure or the EMI, proper consideration should also be given to the eligibility of the EMI ensuing to you. It is advisable not to prepay the home loan at the initial stage, so as to be eligible for all 12 EMI waivers.
Reasons for disqualification from EMI waivers
It is not that once you have taken a home loan under this scheme, you automatically become eligible for waiver of these EMIs. You have to have good conduct with the bank, to be eligible for these waivers. So, your home loan instalments should not have remained outstanding for more than 90 days. Moreover, EMIs that have remained outstanding for less than 90 days but were overdue for more than 30 days only, should not account for more than three instances. So, in case you were not able to pay one EMI for 95 days, you immediately get disqualified from this scheme. The default may be due to your inability to pay or even a mistake on the part of the bank where the EMI gets debited. You will also be disqualified, if you pay your home loan within four years of disbursement, as the first condition for the first four EMI waivers, is that the home loan should have remained live for at least four years.
If you have served your home loan for four years without any delay and only four EMIS are outstanding, you will get a waiver of these EMIs, on payment of the 48th EMI. There is no restriction on fully repaying the entire home loan, after completion of 12 years and there is no provision for reversal of the EMIs that have already been waived by the bank.
The main purpose of introducing this scheme, is to ensure that the borrower pays the EMI regularly as well as to disincentivise the borrower from foreclosing the home loan.
(The author is a taxation and home finance expert, with 30 years’ experience)