SBI Maxgain Home Loan or a similar product from any other bank is one of the best option that you can choose while taking home loan.
What I am describing here is my own experience with SBI Maxgain home loan.
What is Maxgain Home Loan Account?
- It is an Over-Draft (OD) account that SBI (read any other bank that offers similar facility) opens up for the home loan customer.
- Once loan is sanctioned, the loan amount is immediately transferred to this overdraft account.
- Whenever you need to make a payment to the real estate builder (developer), the check is drawn by bank from this overdraft account in favor of the builder.
- You, as a loan seeker pay interest ONLY on the amount that has been drawn from this OD account at any given point of time.
The negative balance visible in this account is total sanctioned home loan amount for you.
You DO NOT pay the interest on the complete balance in your OD account unless it has been disbursed.
Can you withdraw money from maxgain Home loan OD account?
Yes, but with a clause. SBI issues you the Cheque book and internet banking for this OD account only when the home (property) has been registered.
This means that you won’t be able to withdraw the extra money that you park in this account if you home loan is for an under-construction property.
Mine was the same case and hence could never withdraw it as my home is still under construction at the time of writing this article.
Till the time property is registered, money can be withdrawn only to make payments to the builder as per the construction linked plan. You can only deposit the money in it by way of pre-paying some of full part of the loan though.
Earn higher interest in my SBI savings account with SBI Maxgain home loan account?
Whenever you have a surplus savings in your any savings account, you can simply transfer it to this home loan OD account.
The normal savings account earns interest in the range of about 4-6%. Transferring money in to this OD account will save you interest on your pending home loan which would be somewhere in the range of 8-12%.
If you have 10,000 rupees extra sitting in your savings account. This would earn approximately INR 33.3 @4% P.A. for 1 month as interest.
If you transfer this amount to your Maxgain account, you would then GET INR 83.33 @10% P.A. for 1 month as interest.
A good difference of 83.33 – 33.33 = 50 rupees a month! That is why we say: “Money saved is money earned”
You would technically not receive this money from bank but this 83.33 would be the amount that you would NOT pay as interest on your home loan to bank for this particular month.
Hence, your savings on the loan interest can be counted as your income.
To add more benefit, this interest is NOT even taxed as it is your virtual income!
Do we earn interest on Maxgain account if the book balance is in positive?
No. There is no interest paid out if the balance is positive.
Positive book balance in Maxgain OD account means that you have paid back the total loan amount to bank. There is nothing DUE from your side to bank.
If you have pre-paid the full loan i.e. much before the initial time line, it is better to close the account and get the EMIs stopped.
You have to go and close it explicitly. SBI will NOT automatically stop the EMI deduction if your book balance turns positive by way of pre-paying.
How can the book balance in Maxgain OD account get positive? It should always be negative. Isn’t it?
Yes. You are right. The balance in Maxgain home loan account will mostly be negative till the time you have not re-paid it completely back to bank.
So, there is a possibility that you have pre-paid your due balance earlier than the complete loan tenure.
If I repay the complete amount within 4 years for a loan of 10 years and do NOT stop the EMI cycle, the bank would deduct the installment and deposit it in my OD account.
It would then start accumulating the positive balance.
How to close your Maxgain home loan account?
The only way to close the account is to re-pay the complete loan amount. The OD account is generally tagged to one of the SBI branch and this can be a completely different branch than the one sanctioned your home loan.
In my case, it was the Gurgaon’s Sushant lok SBI branch holding my OD account whereas the loan was sanctioned by SBI’s regional branch in Dundhera, Gurgaon.
How can NRI close Maxgain home loan account?
- If you are still in India and planning to leave soon, you would need a notarized Power of Attorney (registered POA is NOT required for bank matters) to help any of your friend or relative to close the home loan account on your behalf.
You will have to write and get this POA notarized while you are still in India. Sample Power of attorney is available here.
This POA can be notarized by any notary within India.
- If you are NRI (Non Resident Indian) i.e. not physically present in India, then the notarization (or attestation as commonly known) of power of attorney is done by Indian Embassy or consulate in your specific country.
How to close Maxgain home loan OD account
- Visit the branch (holding your OD account) in person . You can also send a person on your behalf holding your POA (Power of attorney).
Carrying POA is important as they will keep a copy of the POA for records.
- Ask for the Maxgain home loan OD account closure form. You would also need to ask for the balance accrued interest to be paid till date for the account.
The interest accrued till date means the date when you actually close the loan.
Lets assume that your monthly interest is due on 1st of every month and bank debits it your account the same day.
Now, if you are going for closure of your loan on 10th day of the month, the interest from current month’s 1st to 10th would not have been debited yet.
So, while closing the loan on 10th, bank would calculate interest for 10 days + the current outstanding loan. This will the amount you will pay and pay-off completely.
- Pay the remaining balance in your account (+ the interest accrued till date) by SBI cheque or cash.
Giving out SBI Cheque is recommended as the clearing would happen immediately else, you may have to visit the branch 1-2 days later to allow for some other bank’s Cheque clearance.
- Once account is paid out and closed, the branch will give you a letter specifying that the FULL amount has been paid and account has zero (0) balance.
At this point the OD account would still show as an active account but with zero balance.
- Take this letter to the regional home loan branch of SBI (Like Dundahera Gurgaon branch in my example case) along with POA. They will verify the letter and finally close your OD account.
Here, they will also STOP your monthly EMI’s deduction.
If you do not get your EMI’s stopped here explicitly, SBI would keep deducting it from your account and transferring the amount to this OD account.
Please note that if this continues, your OD account would have positive balance but would NOT earn any interest whatsoever.
How I saved my money by paying lesser home loan Interest?
I wrote about how we can own our home in half the time by paying a little extra over and above the EMI every month.
This concept certainly helps here when you have the facility of doubling up the benefits with Maxgain OD account. On one hand, you are paying lesser interest to bank on the total loan and on the other hand, you are earning more interest on your savings.
|Complete Cost of Apartment||35,20,000|
|Paid out of pocket||15,20,000|
|Loan Applied For||21,00,000|
|SBI Maxgain Home loan (Sanctioned amount) * – Generally lesser than what you apply for – so keep a buffer||20,65,000|
|Maxgain OD account balance *||-20,65,000|
|Rate of interest (Locked for first 3 years)||8%,9%,9%, market rate afterwards|
|Rate of interest on market rate in 4th year||11.75%|
* values have been rounded off to nearest thousand for easier understanding
I personally used to transfer an amount equal to the EMI each month to the Maxgain Home Loan account to ensure that I pay lesser interest every passing month.
Now, the question arises that if I had the enough monthly income to support a higher EMI, then why the hell I did not opt for it in the first place?
Well, the question is very good and the answer simply lies in the way SBI (or any other bank) calculate your loan eligibility.
In my case, the eligibility just hovered around a total loan of 21 lakhs by all means. Hence, the EMI was set up for 240 months/Rs. 17000 per month.
Since, I could use the allowances like LTA and medical (part of my salary structure) which Bank did not consider for calculating loan limits, towards my savings, I was able to pre-pay an extra amount each month.
Also, the loan limits by bank are set keeping in mind the current salary levels of a person. The loan tenures generally span multiple years and your income stands a chance to increase.
If your income increases, it should become easier for you to pre-pay more than what was set up bank earlier.
My advice is to pre-pay as much as you can, if you cannot use the same set of money for earning more than, what you are paying as interest on the loan.
Please note that there is a substantial difference between the similar home loan products of government banks vs private banks. You should carefully understand the terms and conditions before signing any documents.