Posted on 17 Feb 2017
A benefit of INR 2.4 Lac is being given to first-time home buyers with taxable income below INR 18 Lac per annum. This amount is equivalent to total interest subsidy over a twenty-year loan. This loan will be given upfront to the housing finance company who will then distribute it accordingly based on the applications. Judging by this, the benefit amounts to INR 2.2 Lac over a tenure of fifteen years.
The Pradhan Mantri Awas Yojana announced by PM Narendra Modi gives homebuyers subsidy at different rates depending on their income. For an annual income below 6 Lac, the subsidy delivered is 6.5% on a principal component of INR 6 Lac, regardless of the total loan. For an income, up to 12 Lac, the subsidy is 4 percentage points on a principal component of INR 9 Lac, and for people earning up to 18 Lac, its 3 percentage points on a principal component of INR 12 Lac. Overall, the announcements for the existing home buyers and the new home buyers have created a buzz across the real estate market giving this sector a much-needed boost from the stagnation that had crept in.
There has been a major slashing in interest rates for people who have borrowed loans on or after January 1st, 2017. SBI’s rate of interest is now 8.65% dropping up to 1.52% from the rates that existed 6 months earlier. All major banks now reside at an interest rate of or below 9% dropping down by 0.5-1.0% in the past 6 months. This major cut in interest rate is seen as a major boost up for the home buyers.
The budget also has something for the existing customers. The base rate cut in interest rates of 0.15% is deemed pivotal in giving the existing customers an upper hand when it comes to savings. For example, if you have taken a Home Loan at an interest of 10.15% a few years ago, break up of 10.15% is base rate + mark up. Before the cut, the base rate was 10% therefore, the interest rate was 10% + 0.15%. After the cut of 0.15%, the revised interest rate will be 9.85% + 0.15% which is equal to 10%. ICICI bank customers will benefit the most because ICICI has slashed the interest rate by 0.25%. This is a major amount when it is calculated against the big home loans that a person undertakes. There has been a wave of cheer among the existing home buyers after this announcement.
Why should you take a home loan?
Taking a home loan is beneficial in two ways: One, you create an asset for yourself and get into the discipline of saving due to servicing of EMIs. Secondly, on a twenty-year horizon, the value your property will hold is much more than the cost you had invested in owning that property. Furthermore, taking a loan and timely repayment improves the credit rating of an individual which comes in handy to take impromptu loans if any emergency comes.
What does it all mean?
With the slash in interest rate and the subsidy being provided by the government, time couldn’t be riper to invest in your dream home. The real estate developers are also jumping in the thick of things with providing additional features in their homes like customization options available that was never promised before. This is to make the most of the boom that has been created for the buyers in real estate industry. Essentially, while buying a home, you have invested lesser than the eventual gains you are going to get along with promising new features while saving Tax and inculcating a satisfaction of having bought a home at the right price with minimal efforts.