Should you go for ICICI's cashback home loan offer?

ICICI Bank Ltd has launched a new home loan product with Cashback offer. It offers 1 percent cashback on every EMI for the entire tenure of the loan.

"This offer is for the new customers of the bank, and we want to ensure a customer loyalty with this offer. Also, it's a unique offering in India, first of its kind. Apart from 1% cashback on EMI, customers will be provided the option of renewable fixed interest rate for the entire tenure, again making it a very unique proposition in home loan industry," the bank's spokesperson said.

The details: In a way this is a dual rate product where for initial few years (2/3/5) you will have to pay a fixed rate of interest, after which the rate will move to floating rates, which will be linked to the prevailing base rate (currently at 9.75%) of the bank (base rate plus mark up)

Rate: For loan with a two-year fixed period, the rate is 10.25 percent for loan amount less or equal to Rs 30 lakh and 10.50 percent for loan above Rs 30 lakh. For three years fixed period loan, the rate is 10.50 percent and 10.75 percent for less or equal to Rs 30 lakh and above Rs 30 lakh, respectively. Likewise, for a five-year fixed period loan, the rate stands at 10.75 percent for loan amount less or equal to Rs 30 lakhs and 11 percent for loan amount more than Rs 30 lakh. As mentioned earlier, after the completion of the initial fixed rate tenure, if you decide to renew your fixed rate home loan, the renewable fixed rate will be decided on the prevailing ICICI Bank Base Rate (I-Base) at that point of time plus the margin decided at the time of sanction of the loan.

 Should you go for ICICIs cashback home loan offer?

: Under the cashback offer, 1 percent of every EMI will be returned to you. The cashback will start accruing from the first EMI month onwards and will get credited to your account after the completion of 36th EMI month.

EMI Cashback: Under the cashback offer, 1 percent of every EMI will be returned to you. The cashback will start accruing from the first EMI month onwards and will get credited to your account after the completion of 36th EMI month. Subsequently, the 1 percent cashback will be accumulated every EMI month and will get credited into your account after every 12th EMI month. You can choose to avail of this cashback offering either in the form of a credit to your ICICI Bank Account or in the form of a Principal pay-down. Keep in mind that to avail of the cashback offer, it is mandatory for you to have an ICICI Bank account and the EMI has to be paid only through an auto debit to an ICICI Bank account.

What the numbers say: Suppose you have a loan for Rs 40 lakh for 20 years at the rate of 10.50 percent interest. You will have to pay, Rs 55,83,982 as interest and the total cost of the loan will be Rs 95,84,640. Plus Rs 20,000 as processing fee. Hence, the total cost of loan will be Rs 96,04,640.

Now if for the same loan, if you get 1 percent EMI as cash back, the total cost of the loan will go down by Rs 95,846.40. Keep in mind that you will have to bear a processing fee of Rs 20,000 on the loan amount. So with the cashback offer the new total cost of the loan will be Rs 95,08,793.60.

Should you go for it:

Rate: If you see the numbers and compare the loan with itself after the offer, you do save the small amount. But should you only look at numbers? Not necessarily.

If you see the rate is in the range of 10.25-11 percent depending on the fixed period and amount. Harsh Roongta, CEO, Apnapaisa.com, says, "We ran the numbers and saw that if you take a look at the loan, you do save a small amount if you complete for the entire tenure of the loan. For a 20-year loan, at 10.25 percent, you get a benefit of 0.14 percent cheaper. But, as of now, the rates are still on the higher side. And, the rates are expected to fall in the future. It makes no point to be locked at near high rate, when there is downward looking trend as far as rates go in the future."

RBI on 30 October cut banks' cash reserve ratio, and most expect the apex bank to cut policy rates in January. And by then real rates will surely start falling. So, the question, you will have to answer yourself is if you want to be locked for 2/3/5 years on a near high rate, when the rates are expected to fall?

Ease: Also, the fact that you have to be an ICICI bank account holder may makes operating this loan a bit cumbersome, if you are not an ICICI Bank account/ salary account holder or ICICI Bank isn't your primary main financial account. Which means, you will have to open a new ICICI Bank account, and give your bank standing instruction to transfer funds to the ICICI Bank account, for paying this loan via auto-debit.

End note: To go for this offer or not, is a call you will have to take. But if we were in your place, we would shop elsewhere, keeping in mind the market scenario.

Updated Date: Dec 20, 2014 20:20:38 IST