COURTKUTCHEHRY SPECIAL ON HOME LOAN OVERDRAFT RULES
Home Loan Overdraft Facility: Save Interest While Keeping Surplus Cash Accessible
Smart Banking Option Helps Borrowers Cut Loan Costs Without Losing Liquidity
Banks Offer Flexibility Through OD-Linked Home Loans Amid Rising Interest Rates
By Business Reporter
New Delhi: February 07, 2026:
With rising interest rates and increasing financial uncertainty, Indian borrowers are looking for smarter ways to manage home loans. One such option is the home loan overdraft (OD) facility, which allows borrowers to deposit surplus funds into a linked account to reduce interest burden while retaining the flexibility to withdraw money when required. This facility is gaining traction among salaried professionals, business owners, and senior citizens who want to balance debt repayment with liquidity.
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How the Home Loan Overdraft Facility Works
- Borrowers open a current or savings account linked to their home loan.
- Any surplus money deposited in this account is treated as a prepayment, reducing the outstanding principal for interest calculation.
- Unlike traditional prepayments, the borrower can withdraw the surplus funds anytime without penalty.
- Interest is charged only on the net outstanding balance after adjusting the surplus parked in the OD account.
Example:
If a borrower has a home loan of ₹50 lakh and deposits ₹10 lakh in the OD account, interest is charged only on ₹40 lakh. If the borrower later withdraws ₹5 lakh, interest recalculates on ₹45 lakh.
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Benefits of the Facility
- Interest savings: Reduces effective loan burden without permanent prepayment.
- Liquidity maintained: Surplus funds remain accessible for emergencies or investments.
- Flexibility: Borrowers can deposit or withdraw funds anytime.
- Tax efficiency: Interest saved is not treated as income, unlike returns from fixed deposits.
- Ideal for irregular income earners: Business owners or professionals with fluctuating cash flows benefit most.
Risks and Limitations
- Higher interest rates: OD-linked home loans may carry slightly higher rates than regular loans.
- Discipline required: Frequent withdrawals reduce the benefit of interest savings.
- Limited availability: Not all banks offer this facility, and terms vary.
- Processing fees: Some banks charge extra for OD-linked home loans.
Banks Offering OD-Linked Home Loans
- State Bank of India (SBI): MaxGain Home Loan.
- ICICI Bank: Home Loan Overdraft facility.
- HDFC Bank: Smart EMI options with OD features.
- Axis Bank: OD-linked home loan products.
Who Should Opt for This Facility?
- Salaried professionals with surplus savings.
- Business owners with irregular income streams.
- Senior citizens who want liquidity while reducing loan costs.
- Investors who prefer flexibility over fixed prepayments.
Expert Opinions
Financial planners recommend OD-linked home loans for borrowers who value liquidity and flexibility. However, they caution that borrowers must maintain discipline and avoid unnecessary withdrawals to maximize interest savings.
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Conclusion
The home loan overdraft facility is a powerful tool for borrowers who want to save interest without losing access to surplus funds. By parking extra money in a linked account, borrowers can reduce their loan burden while retaining liquidity for emergencies or investments. As interest rates remain high, this facility offers a smart way to manage debt efficiently.