The Pradhan Mantri Awas Yojna is a housing loan scheme that was introduced by the Indian Government as an attempt to make the goal of “housing for all by2021” a reality. This loan option available with all major banks, was introduced in the year 2015 by the Honorable Prime Minister Shri Narendra Modi. It is a credit linked subsidy scheme that allows individuals to get great subsidies on their home loans to consequently reduce the ROI on the loans.
Features of PMAY
Whether it is an SBI Home Loan or any home loan with a major banking institution, it is possible to apply for a PMAY Loan. This loan scheme comes with several beneficial features as mentioned below:
- A subsidy on the principal outstanding is available upfront.
- For MIG category, the Adhaar number is mandatory for the application of the loan.
- For loans of a maximum tenure of 20 years or for the tenure that the borrower has applied for, whichever, is lower, subsidies are provided on the interest as well.
- There is no cap listed for the cost of the property or for the loan amount that is required.
- A discounted interest rate of 9% is applied on Net Present Value of the subsidy provided on the interest.
This scheme extends a home loan to individuals belonging to the Middle Class (MIG 1 and MIG 2), Economically Weaker Sections as well as Low Income Groups.
How to Reduce ROI with PradhanMantriAwasYojna
The primary goal of the Pradhan Mantri AwasYojna is to ensure that home loans are affordable for everyone. This is why extensive subsidies are available on these loans that subsequently reduce the Rate of Interest on the loan as well.
For any home loans that have been applied for after January 1st 2017, it is possible to avail the subsidy provided under the Prime Minister AwasYojna to enjoy the benefits of a lower EMI and ROI. Any interest subsidy that an individual gets under this scheme will be credited to the account directly.
Once the subsidy is applied on the loan, the EMI reduces with immediate effect. The individual has the option of paying the lower EMI each month or retaining the current EMI that he or she is paying so that the loan may be repaid faster.
The interest subsidy amount for SBI Home Loans or any other home loan is not calculated as the difference between the actual interest rate and the subsidized interest rate. Instead it is calculated as the Net Present Value, This Net Present Value is calculated at a discounted Rate of 9 percent. In order to calculate the NPV on an existing loan, an individual will need a complete loan schedule as the interest portion of every EMI that he or she is paying will be considered in order to calculate it.
Here is an example to show how this credit linked subsidy scheme can help reduce the ROI. If an individual has applied for a loan of Rs.12 Lakhs, the Net Present Value as per the 3% subsidy will be Rs.2.30 Lakhs. This means that the principal amount reduces by Rs.2.30 Lakhs. The subsidy that is applied on the home loan will be deducted from the principal amount for all loans such as SBI Home Loans. The EMI that the individual pays is on the balance amount after the subsidy has been applied which is Rs.9.70 Lakhs. The rate of interest will remain the same as the one that the individual has agreed upon when applying for the loan. However, the burden of the EMI will be reduced considerably. The Equated Monthly Installment after applying for this scheme can be calculated using the PMAY Calculator that is available online.
The interest subsidy that is applied varies as per the category that the individual belongs to as per the guidelines of this scheme. The current subsidies offered are as follows:
- Economically Weaker Section/ Low Income Group- 50%
- MIG-I- 00%
- MIG-II- 3%
The interest subsidy is also subject to a maximum loan amount as mentioned below:
- Economically Weaker Section/ Low Income Group- Maximum Loan of Rs.600000
- MIG-I- Maximum Loan of Rs.900000
- MIG-II- Maximum Loan of Rs.1200000
Lastly, there is a cap on the maximum subsidy available to an individual under this loan scheme
as mentioned below:
- Economically Weaker Section/ Low Income Group- 2.67 Lakhs
- MIG-I- 2.35 Lakhs
- MIG-II- 2.30 Lakhs
How to Apply For PMAY Subsidy
To begin with, the individual should be eligible for the PMAY scheme. The primary condition to be eligible for this loan is that the individual or any other family member should not own any home already. The eligibility condition states that the individual or a family member should not own a pucca house.
In addition to that, the beneficiaries of the individual should not have received any central assistance under any housing loan scheme provided by the Government of India.The beneficiaries include the spouse or any unmarried sons or daughters. To ensure that this condition is fulfilled, it is mandatory for all the family members of the individual applying for the loan to provide the Adhaar Card Number.
A request should be submitted to the bank in order to avail the subsidies provided by the PMAY even on existing home loans. This subsidy claim will be submitted to the National Housing Bank. The individual will have to provide:
- A duly filled self-declaration form provided by the bank.
- Original ID proof including passport, Adhaar Card, voter’s ID or Driver’s License.
- Original Adhaar Card of the applicant and all family members.
All the details of the family members provided in these forms should be accurate. Approval of the subsidy on a home loan is subject to clearance provided by the National Housing Bank.