Cheapest Home Loan Rates for First Home Loan Buyers

The current government has taken appreciable initiative to provide home to every citizen of India under the Pradhan Mantri Awas Yojna. The government has made affordable housing scheme a reality through different scale of subsidy on home loans interest rates. Every citizen of India who does not own a “Pucca” house will be benefited by this scheme. A range of subsidies are also in place for promoters to provide houses under the affordable housing projects. The huge subsidy on home loan interest rates would be an immense relief for first time home buyers. The following sub-points discuss the important characteristics of the government’s interest subsidy on home loans.

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Important Characteristics

  • The qualifying criteria for the scheme has been increased. The annual income of a borrower has been increased from Rs. 6 lakhs to 18 lakhs per annum. The aim is to cover major portion of India’s salaried population. Therefore, salaried individuals and self-employed individuals will be able to avail this scheme. But, he/she should not have a ‘Pucca’ house in any part of the country under this scheme.

  • The loan tenure of the home loan under this scheme has also been increased. The present loan tenure is 20 years, before it was 15 years under this scheme. The increase in loan tenure has made it repayment convenient for home loan borrowers.

  • The range of subsidies will be determined by the annual income of the borrower. There is no upper limit on the loan amount but the loan portion that will be subsidized will be based on the borrower’s income. This to remember that the government will not provide subsidy on interest rates for the whole loan amount but for a certain portion of the loan amount and under different subsidy scales.

A tableaux showing different subsidy slabs is given below

Applicant’s Income Slab

Loan Amount for Subsidy

Interest subsidy (%)

Up to Rs. 6 lakhs

Rs. 6 lakhs

6.5%

Up to Rs. 12 lakhs

Rs. 9 lakhs

4%

Up to Rs. 18 lakhs

Rs. 12 lakhs

3%

Therefore, if your monthly income is Rs. 6 lakhs and you are taking a home loan at an interest rate of 8.35% then you will have to pay interest rate at the rate of 1.85% (8.35%-6.5%=1.85%) for a loan amount of 6 lakhs. But, if your loan amount exceeds Rs. 6 lakhs then you have to incur interest at the rate of 8.35%.

For customers, whose monthly income is Rs. 12 lakhs and availed a home loan of Rs.15 lakhs at an interest of 8.35% of the loan amount, then under this scheme he/she will have to pay an interest rate of 4.35% (8.35%-4%= 4.35%) for the loan amount of 9 lakhs. The amount exceeds Rs. 9 lakhs will come under the interest rate of 8.35%.

The same will be applicable in the case of borrowers whose monthly income is above or up to Rs. 18 lakhs. He/she will get interest subsidy for the first Rs. 12 lakhs if his/her loan amount exceeds above Rs. 18 lakhs.

Along with the PMAY scheme, the cut in interest rates by banks will make more people eligible for a housing loan as housing will be more affordable and EMIs will be low. If interest rates come down homebuyers will also be able to avail higher loans.