How Axis Bank Can Waive Off Some Of Your Home Loan EMIs

Aiming to ramp up its mortgage book volumes and expecting better credit behaviour, Axis Bank on Thursday launched a home loan product that entails waiving off a few EMIs during the course of a loan.

The third largest private sector lender will waive off four equated monthly instalments (EMIs) each at the end of the fourth, eighth and the 12th year of a twenty-year loan.

This means that if a borrower takes a 20-year loan, he will get 12 of the EMIs waived off, which the bank claimed will help save Rs. 3.09 lakh on a Rs. 30-lakh loan.

The waivers will be applicable for loans of up to Rs. 30 lakh and will be given in the form of reduction in loan tenures, it said, adding that the interest rate stays the same at 8.35 per cent.

When asked if it will impact the net interest margin as the total tenure is coming down, executive director Rajiv Anand said the bank will benefit from better credit behavior and longevity of a loan as pre-payments will be less.

But a single missed EMI will disqualify the borrower from getting the benefit, while on the longevity front, the incentives can help reduce prepayments, he said.

Asked if this would qualify as a 'teaser loan' about which the regulator has had many concerns in the past, a senior bank official replied in the negative, saying there is no differential rates of interest applied here, which is the typical hallmark of a teaser loan.

The bank already has a special product for the affordable housing segment called 'Asha', while the new product is christened 'Shubh Arambh', the official said, adding the former is aimed at the lower income group (of loans up to Rs. 25 lakh).

At present, Asha loans account for around 5 per cent of its mortgage book, Anand said. As of June, home loans constituted a whopping 44 per cent of the Rs. 1.68 trillion retail portfolio of the bank.

The new product is aimed at first-time home buyers but can be availed of by those switching lenders as well, Anand said.