Looking to reduce your home loan interest without losing liquidity? The home loan overdraft facility is a smart, flexible solution that links your loan to an account where surplus funds lower your interest burden—while remaining accessible anytime. Ideal for salaried professionals, business owners, and NRIs, this feature helps you prepay your home loan faster, save on interest, and stay financially agile.
Take an Overdraft today and save lakhs on your home loan!
Home Loan Overdraft Facility – Key Highlights
Here’s a highlights table for the home loan overdraft facility:
| Feature | Details |
|---|---|
| Interest Rate | Slightly higher than regular home loans (by ~0.10%–0.50%) |
| Purpose | Reduce interest burden while maintaining liquidity |
| How It Works | Link your loan to a savings/current account and park surplus funds |
| Interest Calculation | Charged only on outstanding loan minus surplus in OD account |
| Withdrawal Flexibility | Yes – Withdraw surplus anytime without penalty |
| Best For | Salaried, self-employed, NRIs with variable or surplus income |
| Prepayment Penalty | None – Surplus acts as prepayment without restrictions |
| Popular Banks | SBI (MaxGain), HDFC (Home Saver), ICICI Bank, Bank of Baroda, HSBC |
| Minimum Loan Amount | Usually ₹20 lakh and above |
| Account Requirement | Savings/current account with the lender is mandatory |
What is a Home Loan Overdraft?
A home loan overdraft facility is a unique home loan feature that links your home loan account to a savings or current account, allowing you to deposit surplus funds anytime. Unlike traditional prepayments, the deposited amount can be withdrawn anytime, offering complete financial flexibility. The major advantage? The bank charges interest only on the net outstanding loan balance (i.e., home loan amount minus the surplus parked in the overdraft account), helping you reduce your home loan interest burden and repay the loan faster without any prepayment penalty.
Home Loan Overdraft Facility Interest Rate by Top Banks
Here are the current interest rate ranges for top banks offering home loan overdraft (OD) facilities in India:
| Bank | Product Name | Interest Rate (p.a.) | Key Feature |
|---|---|---|---|
| SBI | MaxGain OD | 8.25% – 9.15% (from 15 April 2025) | Interest only on outstanding minus parked surplus |
| HDFC Bank | Home Saver OD | Standard floating home loan from ~8.45%; OD premium typically ~0.25–0.40% → net ~8.65–8.85% | Linked to current account; flexible surplus withdrawal |
| ICICI Bank | Home Overdraft | Standard home loan ~8.50%–9.55% depending on profile; OD charged only on utilized/surplus portion | Reverse sweep & interest on actual utilized OD funds |
| Tata Capital | Home Loan OD | Starts from ~10.20% p.a. for salaried/self-employed customers | Interest same as term loan; withdraw surplus anytime |
| Axis Bank | Home OD (via LAP) | Generally home loan OD rates are about 0.25–0.50% higher than standard term loan rates (~10%+ p.a.) | Overdraft against property; transparent charges |
Eligibility Criteria for Home Loan Overdraft
- Age: 21–60 years (salaried), up to 65 (self-employed)
- Income: Min ₹25,000–₹30,000/month
- Credit Score: Preferably 750+
- Employment: Stable job or business (2–3 years)
- Loan Amount: Usually ₹20 lakh and above
- Property: Legally approved with clear title
- Linked Account: Savings/current account required with the lender
Processing Fees & Charges – Home Loan Overdraft
| Bank | Processing Fee | Other Charges |
|---|---|---|
| SBI (MaxGain) | 0.35% of loan amount (min ₹2,000; max ₹10,000) + GST | Legal & technical charges ~₹5,000–₹10,000; OD account maintenance: ₹500–₹1,000/year |
| HDFC (Home Saver) | Up to 0.50% of loan amount or ₹3,000 (whichever is higher) + GST | Conversion charges (if switching to OD): ₹5,000–₹10,000; account maintenance fee varies |
| ICICI Bank | Up to 0.50% of loan amount + GST | OD account charges may apply; documentation & legal fees extra |
| Bank of Baroda | 0.25% to 0.50% of loan amount + GST | Processing & inspection fees as applicable |
| HSBC (Smart Home) | Around 1% of the loan amount (varies) | Annual OD facility fee; varies by customer profile |
How Does a Home Loan Overdraft Facility Work?
1. Establishing the Account:
- Your home loan and a dedicated transaction account (such as a savings or current account) are linked together.
- The linked account acts as your “overdraft” facility, making it possible to deposit and withdraw funds.
2. Depositing Surplus Funds:
- You can deposit extra money into the linked account, in addition to your standard home loan repayments.
- Every extra deposit reduces the principal of your home loan, effectively lowering the amount on which interest is calculated.
3. Reducing Interest Charges:
- Interest on home loans is usually calculated daily on the outstanding principal.
- By keeping more money in the overdraft-linked account, you minimize the principal amount and, in turn, pay less interest over time.
4. Withdrawing Funds as Needed:
- If you require funds for unexpected expenses or large purchases, you can withdraw from the linked account.
- The withdrawal increases your home loan’s outstanding balance back up to the agreed overdraft limit.
5. Paying Interest on Utilized Amount:
- Any amount you withdraw is treated as part of your home loan again, attracting interest until it’s repaid.
- This ensures that while you have flexible access to funds, you still bear the responsibility of paying interest on the borrowed amount.
6. Ongoing Flexibility:
- You can continue to deposit extra funds when available and withdraw them when necessary, as long as you stay within the agreed limit.
- This flexibility helps you manage both your short-term financial needs and long-term interest savings.
Also Read: SBI MaxGain Home Loan Overdraft
Example: Home Loan Overdraft vs Regular Home Loan
Rahul and Anita both take a ₹50 lakh home loan for 20 years.
| Detail | Rahul (Regular Loan) | Anita (OD Loan) |
|---|---|---|
| Loan Amount | ₹50,00,000 | ₹50,00,000 |
| Interest Rate | 8.50% p.a. | 8.75% p.a. (OD loans are slightly higher) |
| EMI | ₹43,391 | ₹44,163 |
| Surplus Fund Available | None | ₹5,00,000 from Year 1 onward |
| OD Account Benefit | Not applicable | Interest charged only on ₹45 lakh |
| Total Interest Paid | ₹54.1 lakh (approx.) | ₹43.2 lakh (approx.) |
| Effective Loan Tenure | 20 years | ~15.5 years |
| Total Savings | ₹10.9 lakh saved | |
| Liquidity Retained | Funds are locked | Can withdraw surplus anytime |
Who Can Use a Home Loan Overdraft Facility?
It’s ideal for:
- Salaried professionals with bonuses or variable income
- Self-employed or business owners with irregular cash flows
- NRIs who periodically bring in money to India
- Investors who want interest savings while staying liquid
“As an NRI, I wanted liquidity. The overdraft facility gave me peace of mind and helped me repay faster than I thought.”
–Anil G., Dubai
Benefits of Overdraft on Home Loan
| Benefit | Description |
|---|---|
| No Additional Collateral Needed | Access extra funds without pledging additional assets, maintaining financial security. |
| Flexible Use of Funds | Utilize the available limit for large purchases—such as furniture, electronics, and more—at will. |
| Renovation & Home Improvement | Finance renovation, remodeling, or interior upgrades to enhance and personalize your home. |
| Meeting Business Needs | Tap into funds for working capital requirements, supporting business growth and daily operations. |
Overdraft on Home Loan Helps Lower Interest Costs
The big selling point of a home loan overdraft is the potential interest savings. Since interest is typically calculated on the outstanding principal, any amount you keep in the overdraft-linked account directly lowers the daily balance and, consequently, the interest due.
This can be especially beneficial if you have a steady stream of extra funds—from bonuses, rental income, or other sources—regularly flowing into the account.
Balancing Liquidity and Savings
What sets these overdraft facilities apart from simple prepayments is liquidity. In the event of an emergency, an investment opportunity, or a large purchase, you can tap into the surplus funds without penalties.
For those who like the idea of having an emergency cushion that simultaneously reduces home loan interest, this arrangement can strike a perfect balance.
When is it Worthwhile?
A home loan overdraft generally makes the most sense if you consistently have extra funds to park in the account.
For those who struggle to maintain surplus balances or can’t commit to regular top-ups, the marginally higher loan interest rate may negate the benefits.
Home Loan Overdraft Alternatives
- Regular Prepayments: If you’re comfortable locking in your extra cash, making periodic lumpsum prepayments can help shorten your loan tenure and reduce total interest.
- EMI Step-Ups: Increasing your monthly EMI as your income grows can help you finish off your loan sooner and pay less interest over time.
- Balance Transfers: Improving your credit profile or scouting for better deals with other lenders can lead to a home loan balance transfer at a lower interest rate.
Check Now: Home Loans With Overdraft Facility – Calculator
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“Think of it as a reverse EMI booster. Every extra rupee parked helps cut down interest—without any penalty.”
– Sanjay Bharti, Home Loan Specialist
Conclusion
A home loan overdraft facility offers the perfect mix of interest savings and financial flexibility. Though the interest rate is slightly higher, parking surplus funds can lower your effective loan cost and help you prepay faster. Ideal for those with variable income, it’s a smart way to manage your home loan efficiently while keeping liquidity intact.
Lower Your Interest, Not Your Liquidity!
Frequently Asked Questions
Yes. Unlike traditional prepayments, which permanently reduce your loan principal, money deposited in an overdraft account can be withdrawn at any time, providing greater financial flexibility.
Generally, no. The account linked to the overdraft facility does not earn interest on deposits. Instead, the advantage comes from reduced loan interest rather than earning interest on savings.
Often, yes. Many lenders charge a slightly higher interest rate for home loan overdraft arrangements due to the additional flexibility and liquidity it provides.
Interest is typically calculated on the daily outstanding principal. When you deposit funds, the principal reduces, lowering daily interest accrual. If you withdraw money, the principal and thus interest charges go back up.
Some lenders may charge processing fees, conversion fees, or higher administrative costs. It’s essential to check the fee structure and compare it with the potential interest savings before opting in.
Yes, you can withdraw surplus funds anytime without penalty. This makes the overdraft facility more flexible than traditional prepayment options.
The bank calculates interest only on the net outstanding balance (loan amount minus surplus in OD account), which leads to lower interest payments over time.
Yes, many banks offer overdraft-linked home loans to NRIs, helping them manage their surplus funds in India more effectively.
Yes, especially for those receiving bonuses or variable pay. It allows them to reduce loan interest while retaining access to their funds.
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