Reduce Home Loan EMIs Under Pradhan Mantri Awas Yojana – How It Works
National Housing Bank or NHB has come up with operational guidelines for availing subsidy under Pradhan Mantri Awas Yojana (Urban) for middle-income groups. Under the Pradhan Mantri Awas Yojana (Urban) for middle-income groups, home loan borrowers buying their first home are eligible for subsidy on interest repayments. T
The scheme was earlier announced by the Prime Minister in his New Year’s Eve address to the nation. Sriram Kalyanaraman, managing director and CEO of National Housing Bank, termed the government’s decision to give subsidy to middle-income groups as “historic”. “This is historic as the middle income group has never been covered by the subsidy,” he said.
As part of the government’s “Housing For All” initiative, Prime Minister had announced interest subsidy of 4 per cent on housing loans of up to Rs. 9 lakh for those with an income of Rs12 lakh per year and of 3 per cent subsidy on housing loans of up to Rs.12 lakh for those earning Rs. 18 lakh per year. The scheme has been named as Credit Linked Subsidy Scheme for Middle Income Groups – CLSS (MIG). The scheme will be implemented initially for a period of one year.
Here are 10 highlights of the interest rate subsidy scheme under Pradhan Mantri Awas Yojana (Urban):
1) Home loans sanctioned or applications are under consideration since January 1, 2017, are eligible for interest subsidy under the Credit Linked Subsidy Scheme for Middle Income Groups. The beneficiary earlier should not have own a house in his/her name.
2) Beneficiaries eligible for interest subsidy under the CLSS scheme have to apply to their lenders for availing the subsidy benefit. National Housing Bank will pay the subsidy upfront to the lender.
3) Mr Kalyanaraman said National Housing Bank will most likely pay the lender within one week. “We would just reduce your (borrower) principal as soon as the bank claims with us. Principal effectively stands reduced to that extent,” he said. To avail the scheme banks have to get an undertaking from the customers that this is the only house they have. No extra processing fee will be charged by the lenders from borrowers.
4) The home loan borrower can then opt for lower EMIs or repay loan faster with original EMI, he added.
5) EMIs under the scheme could get reduced by Rs. 2,000 to Rs. 2,800 per month, depending on the loan amount and tenure, and the effective interest on loan could fall by up to 75 basis points, Mr Kalyanaraman added. Additional loans beyond the specified limit, if any, will be at non-subsidised rate.
6) The total interest subsidy for middle-income people over 20 years on Rs. 9 lakh loan and Rs. 12 lakh loan comes to around Rs. 2.30 lakh per beneficiary (the present value of interest subsidy provided to beneficiaries over the tenure of 20 year loan at a discounting rate of 9 per cent.)
7) Interest subsidy will be provided on loans for construction/acquisition of house with carpet area of up to 90 sq metres for those with income of up to Rs. 12 lakh per year and of up to 110 square metres for those earning between Rs. 12 lakh and Rs. 18.00 lakh per year.
8) Besides commercial banks, housing finance companies, regional rural banks, state and urban cooperative banks, other financial institutions like small finance banks and non-banking finance company-micro finance institutions can also lend under this scheme. National Housing Bank has already tied up with many big lenders and is in the process of signing agreement with many others.
9) Under the scheme, the tenure of loan has been stipulated to be 20 years or that preferred by the beneficiary, whichever is lower.
10) Kotak Institutional Equities in a note said that the scheme will give a boost to the housing sector provided real estate players offer compact products at lower ticket sizes. This scheme will help bring down overall interest cost for home loan borrowers, the brokerage added.