While a home loan makes purchasing your dream home easier, the EMI and interest liability is something that doesn’t let your financial worries rest.
Sujit Bangar, founder of TaxBuddy.com, in a detailed LinkedIn post, has explained a smart trick and how this will not only help you windup your EMIs faster, but also make sure you save big on interests too. Bangar, in his post has talked about a lesser-known loan variant –Home Loan Over Draft– and how it can mitigate all your financial pains.
Bangar begins with two hypothetical instances where one has taken a Home Loan Over Draft while the other follows the normal loan route.
“Suresh finished his loan 6 years earlier & saved _19,25,307 in interest-without paying a single extra rupee. All this despite having the same loan amount. Here’s all about Home Loan OD,” writes Bangar.
[1] A Super Saver / Home OD loan works like a regular home loan, except it links your loan to an overdraft account.
_ Every rupee you park there reduces your interest-bearing principal:
_Interest = Loan – OD balance.
And you can withdraw the money anytime – EMIs continue as usual.
[2] Ramesh’s path
__60L loan @ 8.5% _ full balance charged interest daily.
__8L in savings @ 2.5% = ~_20k a year earned.
_Loan runs full 20 years _ total interest _ _64.96 L.
[3] Suresh’s path
__60L loan @ 9%, _8L parked in OD _ pays interest on _52L.
_Liquidity intact – can withdraw _8L anytime.
_Loan closes in 172 months, saving _19.25 L in interest.
[4] Why the difference grows:
That _8L parked earns an effective 9% (the loan rate) instead of 2.5%.
This difference (~_52k per year) accelerates principal repayment _ shorter tenure + massive interest cut.
[5] Liquidity.
_Withdraw whenever needed (OD account).
_EMI doesn’t pause or reset.
_Every extra rupee you park reduces daily interest.
It’s like having a loan that rewards your cash flow management.
Bangar adds that though the Super Saver loan usually comes at a slightly higher rate (0.25-0.5% more), it still is a more viable option because the benefit of reducing your effective loan balance every single day far outweighs the small bump in rate.
