Your first home on 20-year loan to cost up to Rs 5.28-lakh less now

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Updated: February 17, 2017 6:04:06 PM

Giving muscle to affordable housing across the country, the Union government has recently announced two new slabs of interest subvention. Previously, the subsidy was allowed to people earning up to Rs 6 lakh per annum only.

For individuals earning up to Rs 12 lakh per annum, a 4% interest subsidy on a principal component of Rs 9 lakh is waiting at their doorstep.For individuals earning up to Rs 12 lakh per annum, a 4% interest subsidy on a principal component of Rs 9 lakh is waiting at their doorstep.

Giving muscle to affordable housing across the country, the Union government has recently announced two new slabs of interest subvention. Previously, the subsidy was allowed to people earning up to Rs 6 lakh per annum only. But now, it has been extended in two new slabs covering people with an yearly income of up to Rs 18 lakh. Depending upon your annual income, the interest subsidy slabs will be applicable.

First Case – Income below Rs 6 lakh p.a.

People earning below Rs 6,00,000 a year are entitled to receive a subsidy of 6.5% on a principal loan of Rs 6 lakh. Following the subsidy, the interest rate on a principal component of Rs 6 lakh will be 2.70% assuming the loan is offered at 9.20%, while the remaining portion of the loan amount will be serviced at 9.20% interest rate.

Second Case- Income up to Rs 12 lakh p.a.

For individuals earning up to Rs 12 lakh per annum, a 4% interest subsidy on a principal component of Rs 9 lakh is waiting at their doorstep.

Third Case – Income from Rs 12 lakh to Rs 18 lakh p.a.

If you are in the income bracket of Rs 12 lakh-Rs 18 lakh annually, you would be the beneficiary of 3% interest subsidy on a principal component of Rs 12 lakh.

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How Will the Scheme Benefit Home Buyers?
This means that if you earn up to Rs 18 lakh per annum, buying your first house will cost about Rs 5.28 lakh less if you go for a 20-year home loan, as you will be able to save about Rs 2200 per month in EMI. And if you earn up to Rs 12 lakh per annum, then you will be able to save about Rs 5.17 lakh on your total home loan outgo.

“You will be able to save about Rs 5.28 lakh assuming an interest rate of 9%, with a principal loan of 12 lakh and a tenure of 20 years. If you change the rates, say, to 8.5%, there can be a difference in the amount of two EMIs and the overall savings. On 8.5% interest rate, you will save an EMI of Rs 2159 while the overall ownership reduces by approximately Rs 5.18 lakh. On different interest rates, thus, there can be variations in the actual savings,” says Rishi Mehra, CEO of Wishfin.

According to Mehra, the scheme is envisaged to encourage the ownership of homes among the low and middle-income groups across the country. With less interest burden, they can service the loan without being made to hurt their wallet.

Industry experts say that the latest addition in the ambitious Pradhan Mantri Avas Yojna (PMYS) project is the extension of the credit-linked subsidy scheme (CLSS) to the middle-income group as well. “Earlier, the interest subsidy of 6.5% was available only for the EWS and LIG buyers with income up to Rs 6 lakh per annum. The fine prints of policy document are still unavailable, but according to various media reports, the new revision introduced two more new income brackets,” says Surabhi Arora, Senior Associate Director, Research at Colliers International India.

Accordingly, homebuyers in the income brackets of up to Rs 12 lakh and Rs 18 lakh will be eligible for 4% and 3% interest rate subsidy, respectively, on their home loans. “Subsidy is given regardless of the total loan amount, but will be limited to the home loan amount of up to Rs 9 lakh and Rs 12 lakh, respectively, for the above two categories. The interest subsidies are likely to result in reduction in the EMI by around Rs 2200 under both income categories on a 20-year home loan,” says Arora.

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According to experts, it seems to be a positive step, especially in the light of the current sluggish housing demand scenario. It will give some respite to the urban poor and improve the demand in cities where house prices are relatively higher. The government has already given a supply side push via granting affordable housing the industry status. The new policy is intended to provide demand side push. However, a strong demand side push in affordable and mid-segment housing is likely to come through a strong economy backed by ample job opportunities and job security.

Anuj Puri, Chairman & Country Head, JLL India, says that the scheme is targeted at first-time homebuyers and shall spur more homebuying activity across wider household income brackets with the relaxed norms as some subsidy relief is being offered for the mid-segment buyers. “The tax benefit in absolute amount shall be similar across the 12 lakh and 18 lakh income bracket as the subsidy is different under the different income levels and is applicable on different loan amounts,” he said.

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