Finance

How Does Pradhan Mantri Awas Yojana Help You to Reduce Home Loan Interest Rate

In a bid to help every first time home owner, the Pradhan Mantri Awas Yojana (PMAY) was introduced under the “Housing for All” Initiative taken by Prime Minister Narendra Modi. This loan provides several subsidies on Home Loans to make it easier for most individuals to own a home. Calculated as per the income of the individual and the carpet area of the house, this is one of the simplest funding options available to those who want to purchase or construct a new property.

What is the Pradhan Mantri Awas Yojana?

For any individual looking at purchasing a new home, the PMAY scheme is one of the most recommended options available. This is a credit linked subsidy scheme that is available to the Middle Income Group. The guidelines for this scheme are laid down by the National Housing Bank.

According to this scheme all first time home owners are eligible for subsidies or reduced rates of interest towards a housing loan availed under the scheme. You can avail this scheme along with Home Loan deals offered by leading banks such as HDFC Home Loan.

PMAY Categories and Eligibility

There are two slabs of Middle Income Groups and two more income categories according to the Pradhan Mantri Awas Yojana. These two slabs include:

  • Middle Class Income Group I or MIG I- This group includes households that have an annual income that ranges from Rs. 6,00,0001 – Rs. 12,00,000.
  • Middle Class Income Group II or MIG II- This group includes households that have an annual income that ranges between Rs. 12,00,0001 to Rs. 18,00,000.
  • EWS Category: To get a PMAY loan under the EWS category, you should have an annual income that does not exceed Rs. 3 Lakhs.
  • LIG Category: To get a PMAY loan under the LIG category, you should have a combined income in your household between 3 Lakhs and 6 Lakhs.

Therefore, as per these guidelines anyone who is earning between Rs. 6 Lakhs and 18 Lakhs can avail subsidies on Home Loan interest under the Pradhan Mantri Awas Yojana.

Of course, there are some eligibility criteria that you need to fulfill as per the PMAY norms in order to claim these subsidies. These criteria are as follows:

  • You or any member of your family should not own a pucca house. If you are an existing homeowner, you do not qualify for Home Loan interest subsidies under PMAY.
  • You must have a valid Aadhaar Card in order to Apply for Pradhan Mantri Awas Yojana Loan.
  • You or any other member from your family should not have already availed the benefits of other government housing loan schemes.

Subsidy under PMAY

The primary objective of PMAY is to provide loans with a subsidized rate of interest. You can claim these subsidies based on the income group that you fall under and the carpet area of the property that you plan to purchase. The maximum subsidy that you can claim for each category is as follows:

  • EWS or LIG Category: For this category, the credit-linked subsidy that you can claim is 6.5% on a maximum Home Loan of Rs. 6 Lakhs. To claim under this category, the carpet area of the house should be 30 sq.mt. If you are applying for a loan under the LIG category, the carpet area of the house must be 60 sq.mt.
  • MIG I Category: You can claim a credit-linked subsidy of 4% on a maximum Home Loan of Rs. 9 Lakhs. This subsidy can be claimed on any home that you buy with a carpet area of at least 160 sq.mt.
  • MIG II Category: A credit-linked subsidy of 3% may be claimed on a maximum Home Loan amount of Rs. 12 Lakhs. This subsidy may be claimed on a property with a minimum carpet area of 200sq.ft.

Whether you avail an HDFC Home Loan or any other Home Loan under the PMAY scheme, it is important to note that the limit on the loan amount itself is not applicable. However, for the subsidy claims, the maximum amount considered is as mentioned for each category. You can also claim subsidies under PMAY only when the loan is for a maximum tenure of 20 years.

For the EWS and the LIG categories, the subsidies on the loan are applicable even if the amount is used for any renovation or construction. In case of the MIG I and MIG II categories the loan amount is eligible for a subsidy only if it is fully used to purchase a new house.

You also have an additional PMAY Gramin segment where you can claim a credit-linked subsidy of up to 3% on a Home Loan that is a maximum of Rs. 3 Lakhs.

It is also important for all loan applicants to understand how the subsidy is calculated on the loan that you get toward purchase of a new property. When you claim a subsidy, the amount is calculated as per the credit linked subsidy. This amount is deducted from the loan amount and the interest is charged on that.  

How to claim subsidies?

You have the option of applying for a Home Loan with any lender of your choice. You may enroll for PMAY by choosing the loan option listed under it. Then, compare the interest rates offered by various lenders and send in an application to one that you find most suitable.

After the loan is approved, you will be able to receive the amount in your account. The lender on your behalf from the government claims the subsidy.

Once the lender receives the subsidy, it will be transferred to the loan account. The EMI that you pay will reduce as per the subsidy thereon. For the initial period, you will have to pay the EMI as per the normal rate of interest. Only after a span of a few months will your EMI reduce. For any excess that you have paid towards the interest, you will receive a due compensation after the subsidy has been provided.

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