On Home Loan Cashback EMI Waivers, does it work?
By launching two interesting schemes Home Loan Cashback EMI Waivers, by country’s premier banks ICICI and Axis Bank have stepped up in the new home loan game. As ICICI Bank offers borrowers the benefit of 1 percent cashback on every EMI, Axis Bank’s recently launched new home loan product promises to waive 12 EMIs.
Just to recap, ICICI Bank’s scheme is available for home loans with a minimum tenure of 15 years to both residents as well as NRIs. The promised 1 percent cashback will accrue after the 36th EMI. In case of Axis Bank EMI waiver scheme, the maximum loan amount you can take is Rs 30 lakh. The minimum tenure should be 20 years and you can’t prepay before 48 months if you want EMI waiver benefit.
Sabyasachi Rath, CEO, Essel Home Loans feels that customers should understand that these schemes are more optical in nature and the effective rate of interest remains same to the customer. “For banks the cost in the long run is not substantial as a 1% cash back over a tenor of 20 to 30 years works out to 15- 20 bps additional cost to the bank. In a declining interest rate scenario where MCLR of banks are coming down because of lower cost of funds rather than passing the rate benefit in absolute interest rate, these schemes inculcate better customer behaviour.
The devil is in the details. In case of the Axis Bank scheme, the processing fee is up to 1% of loan amount, with a minimum amount of Rs 10,000. For a Rs 30 lakh-loan, the processing fee is a steep Rs 30,000. “The Axis Bank scheme does not offer the flexibility to change EMI cycle. Under this scheme, the EMI cycle will remain fifth of every month. Also, remember, if your repayment record is not consistent, the EMIs will not be waived,” says Debashish Dutta, a financial consultant.
In case of the ICICI Bank scheme, the cashback amount will be calculated at the end of the cashback period – first cashback period is 36 months and the subsequent cashback period is 12 months. “This offer is available only to customers who are making their loan repayment through a ICICI Bank account. Also, please note that cashbacks will not be on any pre-EMI amount. The bank says that the 1% cashback benefit amount is calculated only on the EMIs paid towards the loan.
As these are new innovative products launched by banks, its taxation is not clearly dealt in the existing tax laws.
Source Link- http://www.dnaindia.com/personal-finance/report-math-tax-and-fine-print-behind-home-loan-cashback-emi-waivers-2549910