Reality check

Home loans are going the credit card way. ICICI Bank has introduced an innovative product that offers a 1 per cent cashback on EMI's paid with the first cashback becoming available after 36 months and every 12 months thereafter.

This is how it works. Assume the loan is for Rs 30 lakh and the interest rate is 10.25 per cent per annum for 20 years. The equated monthly instalments (EMI) will work out to Rs 29,449 and each month a 1 per cent cash-back amount of Rs 294 will accrue. The first cashback becomes available only after 36 months.

So, at the end of 36 months, you will get a cashback of Rs 10,584 (Rs 294 multiplied by 36). Thereafter, at the end of every year, you will get a cash back of Rs 3,528 (Rs 294 multiplied by 12).

You have the option of getting back this amount in your ICICI Bank account or getting it adjusted against your home loan principal in which case it will reduce the number of total installments payable.

Your best option is to allow the cashback to be adjusted against the home loan as it is operationally more convenient.

If you keep the loan for a period of 20 years, the cashback will reduce your effective interest rate to 10.11 per cent (that is, you get a benefit of 0.14 per cent per annum), which is a fairly substantial benefit, especially considering that the interest rate of 10.25 per cent (for loans up to Rs 30 lakh only) itself is competitive.

Conditions apply

As usual the offer is hemmed in with a number of conditions. Some important among them are :

1. This is available for ICICI Bank's dual rate offer as well as their regular floating rate loans. Given that interest rates are likely to come down in the near future, it makes no sense to lock in your interest rates at the current levels. Hence, use this option only with ICICI Bank's regular floating rate loans.

2. The cash-back benefit is not available on pre-EMI interest payments. So, if you are going in for a construction-linked plan (60 per cent of home loan borrowers take construction-linked plans) and are paying only pre-EMI interest, you will not get any benefit during the time when the pre-EMI interest is being paid and the counting for the 3-year period will start only once the EMIs begin.

3. The cash-back offer is available only if the EMI is paid by automatic debit to an ICICI Bank account which may make it operationally onerous for consumers who do not have their salary/main operational account with ICICI Bank and are not in a position to shift their salary/operational account to ICICI for any reason.

Matter of choice

It is quite obvious that the innovative offer from ICICI Bank is more expensive than State Bank of India's (see chart) but it is relatively easier to get the loan processed with the former.

So, the ICICI Bank offer can be considered for a lower loan amount of up to Rs 30 lakh and only as a regular floating rate loan for a ready-to-move-in property.

The author is chief executive officer of He can be contacted at