New Delhi, June 22 -- A home loan overdraft facility allows you to deposit funds over and above your regular EMI payments into a linked loan account. These surplus deposits reduce the effective outstanding loan amount, while giving you the flexibility to withdraw whenever needed.

Under this arrangement, the lender connects the home loan to an overdraft account, usually linked to a savings or current account. Interest is charged only on the net loan balance after accounting for the excess funds deposited. Consequently, the higher the surplus amount maintained in the account, the lower the interest payable on the home loan.

Here's a closer look at how a home loan overdraft facility works, along with its key benefits and potential drawback...