PMAY: How to Calculate the Money You Will Save On Buying a House Under Pradhan Mantri Awas Yojana

PMAY: How to Calculate the Money You Will Save On Buying a House Under Pradhan Mantri Awas Yojana

3 sep 19
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For many families in India, owning a home is still a distant dream. Add to it the rising property prices in the country and it seems almost impossible to make this dream a reality. The option of a housing loan is also not feasible for many as the high interest rates and the EMI amounts are not affordable for all. However, recognizing the fact that affordable housing is starting to become a major issue in the country, the government launched the Pradhan Mantri Awas Yojana (PMAY) in the year 2015. The scheme aims to provide “Affordable Housing for all by 2022”. In fact, PMAY was a major highlight in Union Budget 2019.

Under the PMAY scheme, the government grants a subsidy of nearly 6.5% on the home loan interest rates. This makes repaying the EMIs much more affordable. Moreover, the government is also encouraging builders and developers across the country to be a part of the affordable housing program. This is done by offering them attractive incentives and tax benefits for their construction services.

Individuals belonging to the following income group can avail the benefits of the PMAY scheme-

  • Economically Weaker Section (EWS)- Annual Income less than INR.3 lakhs

  • Low Income Group (LIG)- Annual Income up to INR.6 lakhs

  • Middle Income Group (MIG)-Annual Income up to INR.12 lakhs (MIG1) and INR 18 lakhs (MIG 2)

Depending upon the applicant’s income group, the eligibility for the home loan subsidy varies. The government is also encouraging a lot of first-time homebuyers to avail a home loan. Generally, these are the people that fall into the age-group of 20-40 years and already have certain financial liabilities with respect to their business and families. For such people, availing a loan under the PMAY subsidy can help save a lot on the home loan EMI.

 

More About PMAY Subsidy

The PMAY has a special Credit-Linked Subsidy Scheme component under which it grants the home loan subsidy. For loans up to INR 6 lakhs, a CLSS subsidy of 6.5% is applicable. For loans up to INR 12 lakhs and INR.18 lakhs, the CLSS subsidy is 4% and 3% respectively, whereas the subsidized loan amount limits to INR.9 lakhs and INR 12 lakhs respectively.

The interest subsidy is determined based on the Net Present Value (NPV). The NVP of the loan subsidy is calculated depending on the loan’s tenure as the interest paid on each EMI largely influences it. After that, the applicant can use the Fx function of an excel sheet to calculate the NVP. However, an applicant need not go into the details of such tricky calculations. Most home loan providers offer online housing loan EMI calculator that can help calculate the amount saved on your home loan.

 

Below are a few illustrations that can help understand how an applicant can save money under PMAY.

Illustration 1: Applicant with an annual income of INR 6 lakhs

Consider a 9% interest rate and 20-year tenure for the home loan. Then, the total amount payable can be determined as follows

Original Loan Amount

INR.6,000,00

Interest Rate

9%

EMI per month

INR.5398

Total Repayment (Principal + Repayment)

INR.6,95,000

 

Under the 6.5% PMAY subsidy, the interest subsidy’s NVP comes up to INR 2,67,000. As a result, the revised loan amount under the scheme comes down to INR 3,33,000 from INR 6,000,00. This brings down the overall home loan EMI amount to be paid over the loan tenure, significantly reducing the financial burden for the borrower.

Revised Loan amount after PMAY

INR.33,00,00

Interest rate

9%

Reduced EMI

INR. 2996

Total Repayment (Principal + Repayment)

INR.3,86,000

 

When you compare the EMI amount before and after PMAY, you will notice a net saving of INR 2402. Moreover, the applicant also saves on the overall interest by INR 3,08,939.

Illustration 2: Applicant with an annual income of INR 18 lakhs

For loans up to INR. 18 lakhs, the PMAY allows a maximum subsidized amount is INR 12 lakhs at 3% interest. Consider 9% interest rate and 20-year tenure for the home loan

Original Loan Amount

INR.12,000,00

Interest Rate

9%

EMI per month

INR.10,796

Total Repayment (Principal + Repayment)

INR. 13,91,000

 

Under the 3% PMAY subsidy, the interest subsidy’s NVP comes up to INR 2,30,000. As a result, the revised loan amount under the scheme comes down to INR 9,70,000. This, in turn, brings down the overall home loan EMI amount to be paid over the loan tenure, significantly reducing the financial burden for the borrower.

Revised Loan amount after PMAY

INR.9,70,000

Interest rate

9%

Reduced EMI

INR.8727

Total Repayment (Principal + Repayment)

INR.11,24,000

 

Thus, when you compare the EMI amount before and after PMAY, you will notice a net saving of INR.2069. Moreover, the applicant also saves on the overall interest by INR 2,66,649.

As is evident from the above two illustrations, applicants can save a considerable sum on their home loans under the PMAY scheme. However, you need to carefully go through the eligibility criteria for PMAY before applying. Once you are clear on your eligibility, you can apply for PMAY online or offline to avail a home loan subsidy.

For affordable home loan options, apply for the Bajaj Finserv Home Loan today! The home loans at Finserv Markets offer first-time home loan applicants the added facility of reduced EMI and interest rates up to 6.93% under the PMAY scheme. Moreover, the loan borrowers can further avail benefits such as complimentary value-added services as well as balance transfer and top-up options on their Bajaj Finserv Home Loan. Also, the flexible repayment options (up to 300 months)and insurance provided to protect your loved ones from experiencing the burden of EMI payments in the event of any unfortunate incidents, are added advantages of availing a home loan at Finserv Markets. To know more about PMAY online apply, and your eligibility for availing the PMAY subsidy, visit us at Finserv Markets today!

Also, read about eligibility criteria of PMAY. You can also check your eligibility for home loan with home loan eligibility calculator.

 

Finserv Markets, from the house of Bajaj Finserv is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment and exclusive EMI store, all under one roof- anytime, anywhere!