Even Falling Housing Loan Interest Rates Could Not Help Subhash-know How?

Over the last few months, one thing which has been a regular fixture in the news journals is the constant slashing of housing loan interest rates by the lenders across India. This has resulted in the lowering of EMIs and increasing the affordability of many wanting to step into their dream home. The interest rates of premier public and private sector banks have now come down to the level of 8.50%-9.00% per annum. If demonetization was a blessing in disguise for home buyers, the latest announcements of the government with regards to Pradhan Mantri Awas Yojana (PMAY) have given more fodder to affordable housing among the Indian population. It has concessional interest rate offers for people buying their first house depending upon your yearly income. The concessional rates range from 3%-6.5% for people earning from ₹3 lakh-18 lakh a year.

Curious Case of Subhash-

I feel sorry for my best friend Subhash Das who under the pressure of family took a home loan of ₹25 lakh to buy a house 7 months back. But his pocket is not able to handle the pressure of the higher EMI resulting from the double-digit interest rate, which precisely stands at 10.50% per annum. He has availed the loan for a tenure of 20 years. If I compare his loan with the existing interest rate offers of the bank and the concessional rate offers under PMAY, you would find him to be paying much more than you guys if you are looking to begin your housing loan experience.

Subhash Vs Normal Housing Loan Interest Rates-

Subhash is currently repaying the EMI of ₹24,959, while the overall interest outgo and total payments are expected to be ₹34,90,279 over the course of his loan journey. Under the normal interest rate offers of 8.50%-9.00%, he would have been repaying the monthly installment of ₹21,696-22,493. The interest outgo then would have come down to ₹27,06,939-28,98,536. You can see the difference of ₹2,466-3,263 in EMI. The EMI difference may seem small to you but the yawning difference of ₹5,91,743-7,83,340 may let you aware of the opportunity that Subhash missed out on.

Subhash Vs PMAY-

Now come to PMAY announcements that are keenly followed by the housing loan segment in general. The announcements clearly state that people earning from 3 lakhs to 6 lakhs a year can avail an interest rate concession of 6.5% on a loan amount of upto 6.5 lakhs. They will receive the benefit under CLSS-LIG component of PMAY. On the other hand, CLSS-MIG component lets people with a yearly income of ₹12 lakh to avail an interest subsidy of 4% on a loan amount of upto ₹9 lakh and 3% on a loan of upto ₹12 lakh for those with ₹18 lakh as yearly earning. The loan amount beyond the limit as stated will be serviced at the normal rate. Since Credit Linked Subsidy Scheme (CLSS) is applicable as per the income category of an individual, the fair comparison of it with Subhash can be made only when you would know his annual earning, right! Well, he earns an annual income of ₹6 lakhs.

So, his loan status quo should be compared with CLSS-LIG. As per the scheme, the interest rate will be reduced by 6.5% on a loan amount of upto 6.5 lakhs. Keeping the normal rate in consideration, the interest rate would have fallen to 2.2% on the said limit. On the remaining loan of ₹18.5 lakhs, the normal rate of say 8.70% would have been applicable. The indicative EMI and overall interest repayments over the loan term of 20 years would have been ₹19,640 (3,350+16,290) and ₹22,13,561 (1,54,039+20,59,522).

You will find an excess EMI of ₹5,319 and interest outflow of ₹12,76,718 from the pocket of Subhash compared to CLSS-LIG.

I hope you understand the pain Subhash is going through. But you can apply now and get the most out of falling housing loan interest rates to enjoy a memorable stay in your house and express your happiness to the world.

Vikas Das, a noted financial writer, has been sharing his expertise on various products like a Home Loan . The latest article on Housing Loan Interest Rates would give a deep insight of the matter.

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