When Atanu is all set to buy his dream home and enquired a loan from a leading Non-banking Financial companies, he became depressed after getting the reply from the NBFC that he was not eligible for the amount of loan what he wanted. The NBFC also replied that they are not one who doesn’t give him a loan as his income is falling short to pay the EMI. Probably all other housing finance companies will do the same treatment. He then managed the loan by adding his father to boost up the eligibility. Though he did not want his father to be added as co-applicant in his old age, he had no way out at that moment.
The above fact has come to my mind as I have the seen the features and benefits of SBI Flexi-pay home loan. Those who have a good job and are dreaming a home of their own at such an early stage of the career, this home loan can be a savior for them. Generally, a person started working at 23-25 years of age. During the initial years, the income is less. As you grow up in the corporate ladder, your income is growing. If you have decided to buy a home in the initial years, you are forced to buy a small one as your loan eligibility is less.
After five-six years, when you get married and have children it is obvious to have a bigger home which you did not afford at the early stage of your career. To shift to a bigger house, you need to sell the old house and buy a new one which is too hectic for an individual. SBI has come forward to solve this problem with this special type of home loan. In a sense it has a great advantage in terms of flexibility and affordability, it has many disadvantages also.
How it Works?
The home loan EMI has two components i.e. principal and interest. During the moratorium (pre-EMI) period, you are paying only interest and no principal. The moratorium period can be 3-5 years. After that, you start paying the principal component and effective repayment starts from here only.
As the banks are giving you a loan in such a way that EMI should not cross 60% of your take-home income. In the moratorium period as you are paying only interest, the loan eligibility automatically gets higher than your normal limit. As you are paying the principal after 3 to 5 years, your repayment period gets longer than 3-5 years than a normal home loan.
Suppose you have taken a loan of 40 lakhs for 25 years and the applicable interest rate is 8.7%. For a regular home loan, the EMI is Rs 32,750 where interest is Rs 29000 and principal is Is Rs 3750. In this case, your total interest throughout the whole tenure is Rs 58.24 lakhs
For SBI Flexi-pay home loan, you are paying only the interest i.e. Rs 29000 during moratorium period of 5 years. So any principal has not been paid till 5 years. Your actual paying is started after 5 years and the EMI is calculated based on 20 years now and it will be Rs 35,221. In this case, your total interest for the whole repayment period is Rs 61.9 lakhs.
So, if you take SBI Flexi-pay home loan, you are paying Rs 2.5 to Rs 3 lakhs more for a loan of Rs 40 lakhs over a period of 25 years.
Features and Benefits:
- The loan eligibility is 20% higher compared to the normal home loan. If you are eligible for 40 lakhs in the normal home loan, you are eligible for Rs 48 lakhs with SBI Flexi-pay home loan.
- Only the salaried class can apply for the loan and those who have minimum 2-year experience and aged between 21- 45 years will be eligible for the home loan.
- You don’t have to pay any principal component during the moratorium (pre-EMI) period. You can select the moratorium period between three to five years.
- The EMI will be increased gradually 3-5% per year to compensate the EMI of the early period of the loan.
- You can select the repayment period as 25 to 30 years which will minimize your EMI burden and better take home salary.
Here are some of the advantages which I can figure out:
- You can select a bigger home according to your future needs at an early stage of the career.
- You can save in stamp duty and registration charges as you are not indulging in selling a small home and buying a bigger home
- During the initial years, as you are paying only interest component, your take home salary will not be affected so much and you can have your other financial goal in place.
Some of the disadvantages of SBI Flexi Pay home loan are:
- The loan should be more than Rs 20 lakhs. If you have home loan requirement is less than 20 lakhs you will not get this loan.
- People tend to be exposed to a bigger risk and they will end up repaying the home loan for 25-30 years of their life. Moreover, you are not sure about your job future.
- You have to pay more compared the regular home loan as you are paying only interest during the moratorium (Pre EMI) period. After that period your normal home loan EMI actually starts.
- You cannot prepay during the pre-EMI period even if you have surplus cash to do some amount of pre-payment and lower your loan burden.
- Experts are thinking that the youngsters will take more loans without judging his capability of repaying the EMI at the early stage of the career. Hence, they will become defaulters when their job will become at stake. It will raise a situation like the subprime crisis in the US in 2008.
Should You Consider It?
SBI Flexi-pay home loan is for salaried individuals only. As you are not paying principal in the initial years, you are paying more to the bank than the normal or regular home loan. Though some amount of loan is good for your tax saving it is absolutely absurd to take a home loan to pay only interest and no principal.
Moreover, how can you be so sure about your job security in this choppy job market? If you have secured government job with fixed increment, you can think of this loan. But my suggestion would don’t be in a hurry to buy a flat or property. Staying in a rented accommodation is perfectly fine and you also don’t know whether you have to shift to another location or not for a better opportunity.
Hence, decide of taking SBI Flexi-pay home loan after assessing your job security, income capability, financial liabilities and moreover when you are ready to pay more to a bank.
Share your experiences with this home loan, if you have already taken.