Tuesday, September 17, 2019

Advantages of CLSS Scheme for Home Buyers in 2019

In an effort to make housing affordable to the people living in India, the government launched a scheme under the Pradhan Mantri Awaas Yojana in June 2015. It came to existence as the Credit Linked Subsidy Scheme. In it, the government pays a part of the home loan interest as subsidy, to ease the financial burden on the borrower. As of 2018, almost 2.75 Lakh people have taken advantage of this scheme in question.

The PMAY CLSS can help you build or purchase your dream home too. However, here is a brief look at how the scheme affects your loan interests, depending on the annual income of your family.

Income Slab and Subsidy on Interest

  1. Economically Weaker Section (EWS) - If the annual household income of your family is less than Rs. 3 Lakh, the government categorises your family as EWS. As such, you can enjoy interest subsidy of 6.50% on home loans under PMAY.
  2. Low Income Group (LIG) – The government classifies you as LIG if the average annual income in your family is more than Rs. 3 Lakh, but less than Rs. 6 Lakh. Families in the LIG group can avail the same 6.50% subsidy offered to those EWS.
  3. Middle Income Group I (MIG I) – You belong to this group if your family earns between Rs. 6 Lakh and Rs. 12 Lakh. For families in this group, the Credit Linked Subsidy Scheme offers a 4% subsidy on home loan interest payable.
  4. Middle Income Group II (MIG II) – If you earn between Rs. 12 Lakh and Rs. 18 Lakh in a year, your family falls under MIG II. For these people, the subsidy stands at 3%.

Now that you know the different income slabs eligible for a subsidy, you might wonder how the scheme works. Here is a detailed example to help you understand the benefits of this scheme on home loans.

Suppose, you belong to MIG I and you opt for a home loan of Rs. 9 Lakh at 8.5% for 20 years. At this interest rate, you would incur a monthly EMI of Rs. 7810. During the entire tenor of 20 years, you will end up paying Rs. 9,74,498. Now, after considering the 4% subsidy, net present value or NPV for the said home loan comes to Rs. 2,65,000.

Under this credit linked subsidy scheme, you do not have to pay interest on your principal loan amount but on the amount resulting from subtracting the NPV from the principal, which in this case is Rs. 6,65,000. Therefore, your EMI would reduce to Rs. 5771 and, at the end of 20 years, you end up saving Rs. 2,54,453 in interest payments on your loan.

Benefits of the Scheme

The price of land and property is skyrocketing in India. At such a time, people belonging to weaker financial strata of society have no hope of affordable housing. With the help of this subsidy scheme, such individuals can now look afford a residence at par with average living standards. Here are some benefits of availing such subsidised home loans –

Reduces Financial Liability - Since this subsidy scheme reduces the EMI payments for a home loan, it, in general, helps reduce financial burden. With such a subsidy, repaying the loan becomes easier and more convenient.

All Reputed Lenders support the PMAY CLSS Scheme - You do not need to find a separate financing company to avail a home loan with subsidy. If you match the eligibility criteria, any reputed lender will allow you to utilise the benefits of PMAY scheme in India.

Points to Remember for Availing Subsidy on Home Loans

This scheme is available only to first-time homeowners. Therefore, if you already own a property and want to purchase a new house, you cannot avail the subsidy on a loan to purchase the new property. However, such a person can still avail a subsidised home loan for the purpose of renovation or improvement of his/her owned property.

You still need to furnish all documents required for home loans to your lender and meet the specific eligibility criteria for the same.

To avail the subsidy on the loan, you must meet the carpet area criteria based on whether you belong to EWS, LIG or MIG groups. If the property you are buying surpasses the maximum carpet area allowed for your economic group, you will forfeit the subsidy.

Subsidy on home loans can save a considerable amount of your finances. However, you must check all terms and conditions for the scheme before the loan application to ensure that you qualify and benefit for the same.

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