PMAY-A Saga of Interest Subsidy on Home Loan for First Home Seekers

Pradhan Mantri Awas Yojana

Ramesh Sharma, a senior IT professional aged 30 having a net income of 50,000 per month, got the disbursal of a home loan at 8.70% from SBI at the start of 2017. He applied for a loan of 25 lakhs as soon as the demonetization bell was rung by the Modi government in November, 2016. His application, however, took about two months to clear due to certain discrepancies that existed in the documentation. After getting disbursed with a loan, he was rejoicing like anything and had even shared the news on social platforms, drawing a lot of likes and congratulatory comments from his friends and relatives. A couple of months later, the Pradhan Mantri Awas Yojana (PMAY) was launched by the government, giving the prospective subscribers of the scheme a plethora of interest subsidy to lower their home acquisition cost. The subsidies are granted with the integration of Credit Linked Interest Subsidy (CLSS) with the housing program.

His close friend Ravi Shukla, working in the same capacity in a different organization, applied for the same loan amount under PMAY and is now a beneficiary of the subsidies available. That leaves Ramesh cursing himself as to why didn’t he wait for 2 months more so that he would have been receiving the benefits of the flagship housing program envisaged to house every single citizen of the country by 2022. So, what’s in PMAY that has got the world crazy? Wanna know? Find out here.

Subsidies Galore According to Different Income Groups

PMAY has beneficiaries divided into Economically Backward Section (EWS), Low-Income Group (LIG), Middle Income Group-I (MIG-I) and Middle Income Group-II (MIG-II). While EWS includes a segment of the Indian population having the yearly income of upto 3 lakhs, the LIG has people earning upto 6 lakhs a year. On the other hand, MIG-I belongs to people earning over 6 lakhs to 12 lakhs a year, MIG-II features earners above 12 lakhs to 18 lakhs in a year. EWS and LIG have a subsidy of 6.5% on a principal loan component of 6 lakhs, MIG-I and MIG-II components include a subsidy of 4% and 3% on a loan of 9 lakhs and 12 lakhs, respectively. The loan amount above each of the limits shown above would carry a normal rate of interest. The maximum loan tenure under CLSS PMAY is upto 20 years. The people falling under these groups must not have any other home under their or spouse’s name anywhere in India to avail the benefits of PMAY. So, this facility is for the first-time home seekers.

Benefits for EWS

Anyone under this income segment applies for a loan of say ₹10 lakhs for as long as 20 years, he/she would be offered a subsidy of 6.5% on ₹6 lakhs. So, the effective rate on the loan amount would be arrived after getting subtracted from the normal rate. Let’s say the normal rate is 8.40% p.a. The effective rate will be 1.90% (8.40%-6.50%) for ₹6 lakhs. The remaining ₹4 lakhs will bear a normal interest rate of 8.40% per annum. This will result in an EMI and interest liability of ₹6,453 and ₹5,48,716, respectively, for the course of 20 years. Without the subsidy, you would have to pay ₹8,615 of EMI and ₹10,67,611 of interest over the loan term. So, with the subsidy scheme, you are saving an EMI of ₹2,162 and interest of ₹5,18,895.

What Can LIG Expect from CLSS PMAY Scheme?

Suppose your annual earning is ₹5 lakhs and you applied for a 20-year loan of say ₹20 lakhs, a 6.5% interest subsidy will be applicable on a loan of ₹6 lakhs. In that case, the effective rate on ₹6 lakhs will be reduced to 1.90% and the remaining ₹14 lakhs of loan will be serviced at the normal 8.40% interest rate. The resultant monthly installment and interest repayments are going to be ₹15,068 and ₹16,16,327, respectively. In the absence of CLSS PMAY, you would have to pay a higher EMI of 17,230 and interest of ₹21,35,22.

What About MIG-I?

In case your earning in a year is ₹10 lakhs and you are looking for a ₹40 lakh loan under PMAY scheme. Let’s the normal interest rate be 8.55% per annum. In that case, a 4% subsidy on ₹9 lakhs and 8.55% on ₹31 lakhs will dictate the shape of your home loan repayment. Taking all these into consideration, you would need to pay an EMI of ₹32,719 and an interest of ₹38,52,978. Else, be ready to pay the monthly installment and interest of ₹34,840 and ₹43,61,508, respectively, over a 20-year time period. While EMI is reduced by ₹2,121, the interest repayment falls by ₹5,08,530 with the scheme in place.

People in MIG-II-Where Do You Guys Stand?

Let’s assume you earn about ₹15 lakhs a year and are hunting for a loan of ₹50 lakhs via PMAY. The normal rate of interest offered by the participating lender is 8.55% per annum. In this way, a 3% subsidy on ₹12 lakhs and 8.55% on ₹38 lakhs will apply on your loan. The monthly installment applicable would thus be ₹41,378. Meanwhile, you would require to pay interest that extends upto ₹49,32,689 over 20 years. If you fail to avail the scheme, an EMI and interest repayment of ₹43,550 and ₹54,51,885, respectively, would have to be repaid over the loan term.

So, the CLSS PMAY is all set to make your home loan journey a smooth repayment exercise by lowering down your liability of EMI and interest. Don’t wait, buddy. Apply for the scheme now. Ravi, if you are hearing, a whole lot of benefit is coming your way, right! Make most of the opportunity and live in your house with the utmost freedom.

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