How Pradhan Mantri Awas Yojana Helps to Reduce Home Loan ROI

The Pradhan Mantri Awas Yojana (PMAY) was announced by the Prime Minister Mr. Narendra Modi in June 2015, as a part of his ’Housing for All’ initiative. He intends to transform this vision into a reality by 2022. Under the PMAY scheme, people who are buying their first home and have applied for home loans are eligible for a subsidy on their interest repayments. This move has been considered historic by many in the nation. Under the PMAY scheme, you can get a 4% interest subsidy on home loans up to an amount of INR 9 lakh if your income is between INR 6 lakh to INR 12 lakh a year (carpet area of the concerned house can be up to 160 square meters). If your income is between INR 12 lakh to INR18 lakh a year, you can get a 3% subsidy on home loans up to an amount of INR 12 lakh (carpet area of the concerned house can be up to 200 square meters). This scheme is called Credit Linked Subsidy Scheme for Middle Income Group—CLSS (MIG). This interest subsidy is given on loans for both house construction, as well as, house purchase. The loan tenure in this scheme can be of 20 years or lower as per your preference.

Wondering how to apply for a home loan under the PMAY scheme?

The National Housing Bank has introduced operational guidelines for availing this subsidy. If you have already applied for a home loan or have a sanctioned home loan after January 1, 2017, you can avail of this subsidy by applying to your loan provider for the benefit. The interest subsidy is credited directly in your account. In effect, your housing loan amount is reduced (the deduction occurs in the principal loan amount). Subsequently, your Equated Monthly Installment (EMI) also goes down. You could choose to stick to the lower EMIs or repay the loan faster with your original EMI amount. Let us illustrate with a simple example as to how the PMAY can actually help you if you have opted for/want to opt for home loans. Suppose you have applied for a home loan of INR 12 lakh, the Net Present Value (NPV) of the given 3% subsidy on interest will be INR 2.30 lakh. This essentially means that your loan amount reduces by INR 2.30 lakh as the subsidy amount is deducted from the principal loan amount. You have to pay EMI on the balance amount of INR 9.70 lakh at the agreed upon interest rate. This reduces the interest burden on you. You could avail of the PMAY Calculator to calculate your EMI amount. If you are buying a new house from the builder or buying a house from the previous owner, you can avail of the PMAY benefits. This subsidy is also given if you are taking a loan for construction of your house. Other than the income criteria, you have to give an undertaking that you do not own any other house. PMAY-linked loans are available in leading lending institutions like housing finance companies, scheduled commercial banks, urban cooperative banks, and NBFCs, among others. No processing fee is charged for the loan amount that is eligible as per the relevant income criteria. For additional loan amounts beyond the subsidy amount, lenders are allowed to charge the normal processing fee. For the common man, buying a house today has always seemed a distant dream with the cost of living skyrocketing by the day. However, the Pradhan Mantri Awas Yojana hopes to change that. With attractive interest subsidies, it offers the middle-income group, a chance to take the first step towards buying their very first dream home.

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