While most people nowadays need a home loan to purchase a house, there is one particular type of home loan for which I regularly get queries – SBI MaxGain Home Loan. It is a kind of Home Saver Loan available in India (2023) that many borrowers are interested in.
In this article, let’s discuss what are home saver loans, how home saver loans work and what are the benefits and features of SBI MaxGain Home Loan.
The SBI’s loan website (link) explains about the SBI MaxGain as follows – Under SBI Maxgain, the Home Loans are sanctioned as an Overdraft. While customers will have to remit the monthly EMIs as in the case of usual Home Loans, the Drawing Power on the Overdraft will be reduced on monthly basis to the extent of the principal component of the EMI so that the Overdraft is liquidated at the end of the loan tenure. (Interest component of the EMI remitted will service the interest obligations).
If this sounds a bit technical and complicated, then I will explain it a bit with a very simple example first.
Suppose you took a Rs 50 lakh home loan a year back. Now due to your hard work on the job, you suddenly receive a bonus amount of Rs 15 lakh. While you are tempted to use this bonus to make a part prepayment of the loan, it is also possible that you may need this extra Rs 15 lakh in a year or two for your son’s higher education. So what can you do now? If you use this Rs 15 lakh to pay the bank and reduce home loan, then while loan outstanding will reduce, but you will not get back this money.
This is where Home saver loans like SBI Maxgain come into the picture. They allow you to temporarily park surplus amount in your loan account, thereby reducing the outstanding amount proportionately. And when you need to funds later on, you can withdraw the money back. So for the time your extra funds were there in your loan bank account, the interest calculated on outstanding loan amount was less. And this flexibly is what attracts many borrowers to this type of home loan.
How does SBI MaxGain Loan Work (2023)?
Let me try to explain it in simple terms.
The SBI MaxGain or any other similar type of Home Saver Loan from any other lender, generally has 2 accounts linked to it –
- The actual Home Loan Account – This is where you can see your outstanding loan amount
- The other Excess/Extra Account – This is where you can put surplus money temporarily. And as you will see in a bit, if there is any interest savings from the loan and loan EMI account, it will be added to this account itself. You are free to add and withdraw from this excess account whenever you want.
So SBI MaxGain allows you to deposit any (temporary) surplus to this MaxGain Excess account. This extra deposit is then treated as a repayment towards the outstanding loan amount. So your effective outstanding loan amount reduces and hence, the Interest on outstanding for that period also reduces as the interest of home loans is charged only on the actual outstanding Principal (which is Outstanding Principal – minus Surplus parked in excess account).
To know more about how home loan EMI payments work, do read this detailed post on Home Loan EMI Calculator.
It will also help you a lot if you read another article detailing why the Home Loan Principal gets paid off slowly in initial years? This will tell you exactly why it makes sense to make any prepayments earlier in the loan tenor rather than in later years.
SBI MaxGain Example Calculations (2023)
Let us take an example to understand how SBI MaxGain Home loan can help you save a lot on interest outgo if you expect to receive temporary surplus that you can park in the excess account of your home loan.
Suppose you take a Rs 1 Crore home loan for 25 years at 8%. Your monthly EMI in this case will be Rs 77,182 per month.
Let’s see how repayment of this loan starts.
At the start of the 1st month, your outstanding loan amount is Rs 1 crore. Now you pay an EMI of Rs 77,182 in the first month. Out of this, the interest component is calculated as Rs 1 Cr x 8%/12 = Rs 66,667. So this is the interest you service from your 1st month’s EMI. The remaining Rs 10,515 (= Rs 77,182 – Rs 66,667) goes towards the principal repayment and reduces the outstanding loan amount to Rs 99,89,485.
Now comes the 2nd month.
At the start of the 1st month, your outstanding loan amount is Rs 99,89,485. Now you pay an EMI of Rs 77,182 in the 2nd month. Out of this, the interest component is calculated as Rs 99,89,485 x 8%/12 = Rs 66,597. So this is the interest you service from your 2nd month’s EMI. As you can see, it is slightly less than the 1st month interest paid. The remaining Rs 10,585 (= Rs 77,182 – Rs 66,597) goes towards the principal repayment and reduces the outstanding loan amount after the 2nd month to Rs 99,78,900.
So each month with regular EMI payments, you outstanding loan amount keeps going down. And the interest portion of the EMI reduces each month while the principal component increases each month.
And this goes on each month on month till your 25-year loan tenor is over (assuming you don’t make any prepayments in between and the interest rate stays same as assumed in this example for simplicity). Here is how the home loan repayment schedule looks like in case of regular repayment –
Now let’s see what happens when you get extra funds that you want to park in SBI Maxgain loan (excess) account for sometime.
How Loan Repayment happens in SBI Maxgain Loan when Surplus parked in excess account?
Let’s continue with the previous example.
You have already paid 2 months EMI.
Suppose you suddenly get Rs 20 lakh for your annual bonus. And you don’t know what to do with it but to avoid spending it recklessly, you have put this Rs 20 lakh in the SBI Maxgain OD (excess) account on the first day of the 3rd month.
If you remember, the loan outstanding balance at the end of 2nd month was Rs 99.79 lakh.
You parked extra Rs 20 lakh in the Excess Account. This reduces the effective loan outstanding to Rs 79.97 lakh (calculated as Rs 99.79 lakh – Rs 20 lakh).
Now comes the interesting part that shows the benefit of SBI Maxgain Account.
Under such home loan saver accounts, the interest for the month is calculated on only the actual outstanding amount, which is Current Loan Account Outstanding – Surplus Money parked in Excess Account).
As mentioned earlier, in this case it comes to Rs 79.97 lakh (calculated as Rs 99.79 lakh – Rs 20 lakh).
So here is what happens because of this.
Your monthly EMI stays same at Rs 77,182.
But the interest on the month changes due to reduced outstanding as follows – Interest for the month = (Rs 99.79 lakh – 20 lakh) X 8%/12 = Rs 53,193.
Does it mean more money goes towards principal repayment in this case as the interest for the month is lower?
The Principal repayment for the month stays at Rs 10,656 which is as per the original loan amortization schedule. There is no change in the principal repayment here.
But your EMI was Rs 77,182. If we deduct Rs 53,193 for interest (as calculated above) and Rs 10,656 as principal repayment (as per original amortization), it still leaves Rs 13,333 for the month? Where does this residual EMI go?
It gets added to your Excess Account where you had parked the Rs 20 lakh surplus. So the Excess Account balance at the end of the month will be Rs 20 lakh + Rs 13,333 = Rs 20,13,333.
So the interest you saved, in a way becomes the interest earned – which is getting added back to your Excess Account. And you are 100% free to withdraw from this excess account whenever you want.
The principal outstanding at the end of the month = Rs 99.79 lakh– Rs 10,656 = Rs 99.68 lakh.
So that is how your SBI Maxgain Loan works in India (2023).
As you may have noticed, the loan principal goes down as per the original amortization schedule only even if you park extra funds in the excess account.
The home loan principal will be reduced only if you explicitly make a home loan prepayment by telling your bank. In that case, you actual outstanding loan amount will reduce but your money that you paid for prepayment, will not be available to be taken back if you need it (and which is possible if you temporarily park funds in the excess account instead)
Just keeping the extra money in the Excess Account will reduce your interest for the months (the money is there), but it does not qualify as loan prepayment technically. You can still take out the money when you want. Just that when you take out the money, your interest gets calculated for the month accordingly.
And what if you get a very large surplus and put it in excess account and that results in the Excess Account balance becoming higher than the Principal loan Outstanding account? In this case, the extra amount will not help you save or earn any interest.
Since the money parked in excess surplus account does not go towards actual prepayment (though you get benefits like that), your EMI and the loan tenure does not change during the course of tenure, irrespective of whether you park any surplus in the Maxgain account or not.
Another important point – As I said earlier, any surplus amount you deposit into your SBI Max Gain Account will not be treated as principal loan repayment. Hence, such deposits will neither be considered for tax saving purpose under the Section 80C, nor the interest saved (and added back to the excess account) will be eligible for tax saving under the Section 24 B of the Income Tax Act.
So if you keep depositing excess money into this OD excess account, you will not get any extra tax benefits so for many people with larger loans like Rs 1 crore home loan amount, this might lead to lesser tax benefits.
Related Reading – Home Loan tax benefits (Section 80C and 24B)
Home saver loan like SBI Maxgain gives the borrowers the benefits of prepayment (and reduced interest) without compromising liquidity or flexibility of getting to use your extra money when you want. It is as liquid as being able to withdraw money from excess account using ATM!
And it is for this flexibility that many borrowers, use SBI MaxGain Excess account (or OD account) to park money for contingencies, that is as a Emergency Funds.
Given that the FD rates and savings account rate are almost always less than home loan rates, you earn more (by means of interest saving) if you park surplus for emergencies in SBI MaxGain Home loan excess OD account.
All said and done, if you are planning to take a home loan to purchase a house, then you can consider exploring these Home Saver Loans like SBI Maxgain. It is possible that you may have to pay a slightly higher rate of interest as compared to other regular home loan products for this one given that it offers this flexibility. Also check the loan terms and conditions as till recently, there was a pre-condition before you could make any withdrawal from the Excess Overdraft OD Account like you can’t withdraw till you get possession of your under construction house Vs ready-to-move house.
So make sure you understand the rules of SBI Maxgain and then opt for benefits of SBI Maxgain in India (2023) when purchasing a house on home loan.
So that was all about SBI MaxGain Home Loan Scheme and its features and benefits you should know about as a home loan borrower in India (2023). I hope you found the review of SBI Maxgain useful.
Reference – SBI MaxGain Home Loan Calculator on SBI website – shown below is a screenshot from the calculator.