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  1. 3 years of Modi government: Achche Din have come; here’s how you can save lakhs of rupees if you take a home loan now

3 years of Modi government: Achche Din have come; here’s how you can save lakhs of rupees if you take a home loan now

The Modi government is soon going to complete three years in office. During this period, it has taken several steps to boost the nation's economy and empower the common people. Although it has also missed out on some fronts, but there are achievements galore, one being the arrival of Achche Din for home loan borrowers.

By: | Updated: May 16, 2017 12:35 PM
There are many steps which the Modi government has taken during the last three years.

The Modi government is soon going to complete three years in office. During this period, it has taken several steps to boost the nation’s economy and empower the common people. Although it has also missed out on some fronts, but there are achievements galore, one being the arrival of Achche Din for home loan borrowers.

Call it a result of the government’s initiatives or what you have, but nobody can deny this fact that home loan rates have come down significantly after the arrival of the Modi government at the Centre, and are at their 10-year low currently.

“There are many steps which the Modi government has taken during the last three years. The passing of the Real Estate Bill, demonetization exercise to curb black money, subsidy on home loan interest along with its focus on affordable housing have played a key role in reviving the real estate sector to some extent. With lower inflation, policy rates have come down, giving a big relief to home loan borrowers as they have resulted in the lowering of home loan rates,” says Jitendra P S Solanki, a SEBI-registered investment adviser and founder of JS Financial Advisors.

Along with lower home loan rates (which have come down to 8.3%-8.5% currently as against 10.5%-11% 3-4 years back), residential property has also become more affordable now, making it a double bonanza for homebuyers.

“The conditions today certainly favour home-buying. There’s been a gradual lowering of loan interest rates, helped in part by demonetisation. This means that new customers are able to take on bigger home loans, and old customers are enjoying lower EMIs and long-term savings on interest,” says Adhil Shetty, CEO, Bankbazaar.com.

Another positive thing is that RERA has finally kicked in, which will protect the interests of homebuyers. Also, “Finance Minister Arun Jaitley announced additional tax savings for first-time homebuyers in the latest Union Budget. The Ministry of Urban Development’s vision for the Smart Cities Mission has excited millions among us, and it should set the stage for long-term urban growth. The Ministry of Housing and Urban Poverty Alleviation is taking steps to make affordable housing a dream for many Indians. While much work remains to be done on many of these fronts, it can be broadly said that homebuyers in India have rarely had it this good,” says Shetty.

So far as home loan rates are concerned, it may be noted that even a 25-50 bps rate cut results into a significant amount of savings for new borrowers. For instance, assume someone was planning to take a home loan of Rs 25 lakh for a period of 20 years at 8.50% interest. The EMI would have been Rs 21,696 in this case. Over 20 years, the borrower would be paying Rs 27,06,939 as interest. A 25 bps fall in interest rate, however, would bring down the EMI to Rs 21,302 and the total interest paid to Rs 26,12,394. A 50 bps rate cut would bring down the EMI to Rs 20,911 and the total interest payable to Rs 25,18,640. That’s Rs 94,545 saved in case of a 25 bps cut and Rs 1,88,299 saved in case of a 50 bps cut, as shown in the table below.

Current rate

New rate

Old EMI

New EMI

Difference (EMI)

Old interest

New interest

Difference (Interest)

8.50%

8.25%

21696

21302

394

27,06,939

26,12,394

94545

8.50%

8.00%

21696

20911

785

27,06,939

25,18,640

1,88,299

Now suppose the home loan interest rate was 10.5% three years back. Now if someone, say Amit, takes a Rs 25-lakh loan at the 8.5% for 20 years and another person, say Suresh, takes a loan at 8.3%, how much would they be able to save in EMI and interest compared to the previous rate? As is clear from the table given below that if someone takes a Rs 25-lakh loan at 10.5% interest, then he would be paying Rs 24,959 as EMI and Rs 34,90,279 as total interest over a 20-year term. No if Amit takes a loan at 8.5%, then Rs 21,696 would be his EMI and he would pay Rs 27,06,939 as interest. Similarly, in the case of Suresh, the EMI would be Rs 21,380 and total interest would be Rs 26,31,240. Thus, Amit would be able to save Rs 3,263 in EMI and Rs 7,83,340 in interest, while Suresh would save Rs 3,579 in EMI and Rs 8,59,039 in the total interest over 20 years, which is a huge saving!

Rate 3 years back

Current rate

Old EMI

New EMI

Difference (EMI)

Old interest

New interest

Difference (Interest)

10.50%

8.50%

24959

21696

3263

34,90,279

27,06,939

7,83,340

10.50%

8.30%

24959

21380

3579

34,90,279

26,31,240

8,59,039

The saving in EMI and interest will increase with an increase in the home loan amount. Moreover, the new home loan borrowers would now also benefit from the Modi government’s interest subsidy scheme. You might remember that on New Year’s eve, the PM had announced two new interest subsidy rates of 4% and 3% for loan amounts of up to Rs 9 lakh and Rs 12 lakh, respectively, under the Prime Minister Awas Yojana (PMAY). The beneficiaries under the new slabs are those with household incomes of Rs 12 lakh and Rs 18 lakh, respectively. Thus, if you are in this income bracket, then you will also be able to get the benefit of this scheme, which is an added advantage.

“New borrowers who wish to avail loans are able to afford one due to lower EMI outgoes, which fit in their budget. Even existing investors are getting an option from their banks to convert the existing loan to lower rates, although with payment of one-time processing fee in some cases. Now with the announcement of subsidy on housing loan interest up to Rs 12 lakh, it will push new borrowers to seek housing loans at a very affordable EMI outgo – a decision which they would have delayed before. Overall, lower home loan rates along with the surety of timely completion of construction will now ensure that borrowers are able to manage their finances within their means and more efficiently,” says Solanki.

What more would you ask for?

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