Mortgage Loans vs Overdraft Facility
Loan Against Property is a popular type of mortgage loan wherein borrowers provide a property asset as collateral against which a sizeable sanction is extended. The property remains mortgaged till the loan amount is repaid in full.
When lenders extend an overdraft facility to you, what it means is that you can draw funds from your account, even if you are lacking funds in them. You will be charged interest only on the amount you have utilised, which gets capped based on the sanctioned limit prescribed by the lender.
In the case of a mortgage overdraft loan, your lender opens a separate loan account for you where the sanctioned amount is deposited as and when you require it. Similarly, whenever you deposit any money into the account above your EMI amount, it counts as a prepayment – directly reducing your loan burden. The most important part of this facility is that you pay interest only on the amount you have utilised and not on the whole loan sanction limit allocated to you.
The mortgage overdraft facility is ideal for those who want to repay their mortgage loan faster, without incurring part-prepayment charges. Here are some other features that come along with this credit type:
- Always ensures liquidity for the borrower
- Reduces interest outflow
- Helps avoid part-prepayment charges
There are several key differences between a mortgage overdraft and the traditional offering. These include variations in the repayment window, usage and the interest charged. For a more detailed breakdown, read on.
| Parameter | Mortgage Loan | Mortgage Overdraft Loan |
|---|---|---|
| Fund Access | The whole loan sanction is deposited into your account as a lump sum amount, which is ideal for large scale one-time expenses | The approved loan amount is available whenever you need it, which is optimal for those who have frequent cash needs |
| Collateral | Mortgage loans are disbursed only against a property asset, pledged as collateral – which also determines the loan amount value | The overdraft amount is also limited and calculated based on the value of the property that’s offered as a collateral |
| Part-Prepayment charges | Can make part-prepayments (equivalent to one EMI at least). Part-Prepayment charges may apply as per the terms of the loan agreement. | There is flexibility of repayment, and borrowers can deposit any amount of money, above the EMI whenever they have surplus funds. Part-Prepayment charges not applicable for mortgage overdraft loan. |
| Interest Outflow | Borrowers with regular mortgage loans must pay interest on the whole loan sanction that was disbursed into their accounts | Borrowers have to pay interest only on the amount they have utilised, and not the whole limit extended to them; thereby making the interest outflow more flexible and use-based |
Please note that Bajaj Housing Finance has selective Flexi-Loan schemes available for eligible applicants.
*Terms and conditions apply
