How much your bank can credit to your account

The government announced an ex gratia interest-on-interest exemption scheme on October 23 to provide some relief and financial support to borrowers who may be in financial difficulty due to covid-19.

Under this regime, the government will cover accrued interest on interest received during the moratorium period and not all of the interest due during the period. The benefit is available to all borrowers with any outstanding loan, including credit card contributions and home, education, auto, personal and consumer loans up to competition from ??2 crore as of February 29, 2020. The benefit will be available to those who have opted for the moratorium or not.

According to the guidelines issued by the government, the relief will be equivalent to the difference between compound interest and simple interest for the six-month period. The calculation will be the same for all borrowers, those who have not opted for the moratorium, those who have opted for the six-month moratorium and those who have opted for less than six months of moratorium.

It is not available for loans in default on or before February 29. It is also not available on loans such as term deposit loans.

So, with the help of Bankbazaar.com, we have done envelope calculations on how much borrowers are likely to benefit from the program. Let’s understand how much money is likely to be credited to the borrower’s account against different loans.

Case 1: Home loan: Suppose a loan of ??50 lakh for 20 years at 8.5%. On this loan, the first 12 IMEs are paid on time, then IMEs 13-19 are deferred during the moratorium.

Case 2: Car loan: ??10 lakh for 6 years at 10%. On this loan, the first 12 IMEs are paid on time, then IMEs 13-19 are deferred during the moratorium.

Case 3: Personal loan: 5 lakh for 4 years at 13%. On this loan, the first 12 IMEs are paid on time, then IMEs 13-19 are deferred during the moratorium.

“Note that the notification states that interest would be calculated based on the interest rate as at February 29, 2020. So even if your interest rate fell during the 6-month moratorium, the calculation would not include these changes. . So if your home loan rate was 8.5% on February 29 and dropped to 7.25% within six months, the interest calculation would still take into account the original 8.5% for purposes calculation, ”said Adhil Shetty, CEO of Bankbazaar.com.

The ex gratia amount to which a borrower would be entitled would be a very small amount compared to the actual interest generated on the unpaid amount owed to the moratorium. “It is therefore essential that borrowers who have opted for the moratorium provision for their short-term finances because the repayment will not have a significant impact. In this situation, it would be prudent, especially for borrowers with large contributions, to periodically make prepayments of principal to clear the additional debt accumulated as a result of the moratorium. Paying 120% of their deferred IMEs within 12 months of the last deferred IME would help achieve this, ”said Shetty.

Borrowers should also be aware of the impact on the tax deduction associated with home loans. “The interest deduction on the home loan will be reduced by the amount of relief the government provides,” said Swar Pathak, a Ludhiana-based accountant.