Posted on: September 20, 2017

Are you Eligible to get a Home Loan Subsidy?

Home Loan Subsidy

The announcement of the central government’s ‘Housing For All by 2022’ initiative came clubbed with the Pradhan Mantri Awas Yojna (PMAY) scheme focussed on the urban poor (Economically Weaker Sections (EWS),  Lower Income Groups (LIG)) and later, also on the Middle Income Groups (MIG) of the society.


The Pradhan Mantri Awas Yojna has four integral parts – Rehabilitation of prevailing slum dwellers by utilizing land via private partnership, Subsidy for beneficiary-supported house construction and or enhancement, Affordable Housing through partnership and Credit Linked Subsidy Scheme.


The government wants urban dwellers to own a home (pucca house) and thus they are encouraging prospective homebuyers (especially first-timers) to apply for home loans with a trust-worthy lender and get the home they want through a hassle-free process. To boost this process-line, the government has launched the Credit Linked Subsidy Scheme. Since securing a loan is akin to taking a credit and the subsidy scheme announced by the government provides subsidies on the home loan interest rates, this scheme is called a credit-linked subsidy scheme (CLSS).


To avail a subsidy under this scheme, the applicant should not own a dwelling unit on his/her name or on the name of a family member across the length and breadth of India. Also, the applicant and his/her family should not have availed any central assistance under any housing scheme of the central government to avail this scheme.


Referring CLSS scheme, an applicant is an adult earning member (married/unmarried) who doesn’t own a pucca house (an all-weather unit) in her/his name in India. Such an applicant, even if she/he currently dwells with her/his family (parents or other related members) will be considered a separate household under the confines of this scheme.


This credit-linked subsidy is available at different rates for beneficiaries belonging to different financial backgrounds of the society:
 

Category Household annual income (Rupees per annum) Loan Amount (Rupees) Interest Subsidy Rates
EWS Up to 3 lakhs Up to 6 lakhs 6.5%  
LIG Up to 6 lakhs Up to 6 lakhs 6.5%  
MIG-I Above 6 lakhs – Up to 12 lakhs Up to 9 lakhs 4%  
MIG-II Above 12 lakhs – Up to 18 lakhs Up to 12 lakhs 3%  

 
If the beneficiary’s loan amount exceeds Rupees 12 lakh then the additional part of the loan shall not be subsidized under this scheme. The maximum loan tenure under this scheme shall be of 20 years. The subsidized amount provided by the government will also be credited upfront to the borrowers. This will reduce the effective loan amount and the effective EMIs.


Benefits of CLSS


Now, let’s contemplate on the bit which describes how your loan will be calculated:


If, for example, you are taking a loan of Rupees 6 lakh and your lender is offering you an interest rate of 10%, the subsidy slab your loan shall lie in is 6.5%. However, in the CLSS’s case the subsidy won’t be calculated by subtracting the interest rate from the subsidy rate, i.e. considering the above example, the interest rate at which you will have to service the loan won’t be 10% – 6.5% = 3.5% instead that rate will be calculated through Net Present Value calculations of the interest subsidy amount.


The Net Present Value calculations will be done at the discount rate of 9% and its value depends on each of the loan’s Equated Monthly Instalments (EMIs) and its amortisation schedule. NPV calculations take EMI repayment schedule in consideration to calculate the subsidy you will receive on your home loan amount under CLSS scheme.


Let’s navigate all the categories through the help of examples:

  1. Eligible home loans for the EWS and LIG category under the CLSS scheme:
     
Category Loan Amount (Rupees) Interest Rate EMI Amount (Rupees) Total interest over loan tenure of 20 years (Rupees)
EWS and LIG 6 lakhs 9% 5,398 6.95 lakhs

 

After the government’s CLSS subsidy of 6.5% on loan amounts up to 6 lakh rupees, the Net Present Value of the interest subsidy amount comes to Rupees 2 lakh 67 thousand. So, this amount shall be reduced from your initial loan amount. Let’s look at what your revised loan amount and EMI will be:
 

Category Loan Amount (Rupees) Interest Rate EMI Amount (Rupees) Total interest over loan tenure of 20 years (Rupees)
EWS and LIG 6 – 2.67 lakhs = 3.33 lakhs Remains Same = 9% 2,996 3.86 lakhs

 
Considering above example:
 

Reduction in EMI after CLSS subsidy = Rupees 5,398 – Rupees 2,996 = Rupees 2,402
 

Reduction in Interest Paid after CLSS subsidy = Rupees 6.95 lakhs – Rupees 3.86 lakhs = Rupees 3.09 lakhs
 

  1. Eligible home loans for the MIG-I category under the CLSS scheme:
     
Category Loan Amount (Rupees) Interest Rate EMI Amount (Rupees) Total interest over loan tenure of 20 years (Rupees)
MIG-I 9 lakhs 9% 8,098 10.43 lakhs

 
After the government’s CLSS subsidy of 4% on loan amounts up to 9 lakh rupees, the Net Present Value of the interest subsidy amount comes to Rupees 2 lakh 35 thousand. So thus, this amount shall be reduced from the loan amount. Let’s look at what your revised loan amount and EMI will be:
 

Category Loan Amount (Rupees) Interest Rate EMI Amount (Rupees) Total interest over loan tenure of 20 years (Rupees)
MIG-I 9-2.35 lakhs = 6.65 lakhs Remains Same = 9% 5,983 7.70 lakhs

 
Considering above example:
 

Reduction in EMI after CLSS subsidy = Rupees 8,098 – Rupees 5,983 = Rupees 2,115
 

Reduction in Interest Paid after CLSS subsidy = Rupees 10.43 lakhs – Rupees 7.70 lakhs = Rupees 2.73 lakhs
 

  1. For eligible home loans for the MIG-II category under the CLSS scheme:
     
Category Loan Amount (Rupees) Interest Rate EMI Amount (Rupees) Total interest over loan tenure of 20 years (Rupees)
MIG-II 12 lakhs 9% 10,796 13.91 lakhs

 
After the government’s CLSS subsidy of 3% on loan amounts up to 12 lakh rupees, the Net Present Value of the interest subsidy amount comes to Rupees 2 lakh 30 thousand. thus, this amount shall be reduced from the loan amount. Let’s look at what your revised loan amount and EMI will be:
 

Category Loan Amount (Rupees) Interest Rate EMI Amount (Rupees) Total interest over loan tenure of 20 years (Rupees)
MIG-II 12 – 2.3 lakhs = 9.7 lakhs Remains Same = 9% 8,727 11.24 lakhs

 
Considering above example:
 

Reduction in EMI after CLSS subsidy = Rupees 10,796– Rupees 8,727= Rupees 2,069
 

Reduction in Interest Paid after CLSS subsidy = Rupees 13.91 lakhs – Rupees 11.24 lakhs = Rupees 2.67 lakhs
 

Please also note that the Middle Income Groups’ scheme for CLSS is valid till 1.1.2018 as of now. Also, CLSS for MIG is intended to support purchase/construction of a property of 90 square meters carpet area for MIG-I category and 110 square meters carpet area for MIG-II category.
 

Whereas, the maximum size of home construction/extension allowed under CLSS EWS subsidy scheme is of the size 30 square meters Carpet Area and the maximum size of home construction/extension allowed under CLSS for LIG applicants is of the size 60 square meters Carpet Area. This scheme is not only relevant for purchase/construction of a dwelling unit but also for structural addition in your existing house units; this is called incremental housing.


Details about CLSS


As per the Ministry of Housing and Urban Poverty Alleviation database, the Credit-Linked Subsidy Scheme was launched by the Indian government to increase institutional credit flow to the housing needs of the urban poor. Just like the UJALA scheme in the energy sector, the CLSS scheme is intended to be a demand side intervention by the central government for the housing market.


Through this scheme, the government plans to credit interest subsidy upfront into the loan account of beneficiaries. This will happen through the partnership of primary lending institutions which are expected to reduce effective housing loan amount and the Equated Monthly Instalments (EMI) pertaining to loans.


Since last couple of years, the RBI (Reserve Bank of India) has reduced its Repo Rate numerous times. This has made banks reduce their interest rates on fixed rate and MCLR-linked home loans too. Currently, the home loan subsidy schemes such as CLSS are running for the Economically Weaker Section (EWS) and for the Middle Income Group (MIG) where banks are offering home loans at a historically low rate and over that the government is offering subsidy on that loan. Recently, the Reserve Bank of India had cut its Repo Rate by 25 Basis Points to 6%. The home loans are usually available at interest rates of 8.35% to 14%.


Subsidy through CLSS can be availed for both under-construction and ready-to-move-in properties. These interest rates subsidy schemes can only be availed if the builder/developer is a recognized one. This scheme is available with both banks and Housing Financial Companies such as Life Insurance Corporation Housing Finance, Axis Bank, Muthoot Finance, Punjab National Bank Housing Finance, GIC, Dewan Housing, HDFC Bank, ICICI HFC, Tata Capital, L&T Housing Finance, Yes Bank, Indiabulls Housing Finance, DCB, Federal Bank and most Public Sector Undertaking banks.


Housing and Urban Development Corporation (HUDCO) and National Housing Board (NHB) are the governmental nodal agencies which will take forth this project. They are also called Central Nodal Agencies for this role. A Credit Linked Subsidy Scheme Lenders List is available on the Ministry of Housing and Urban Poverty Alleviation website

http://www.mhupa.gov.in/writereaddata/clsspli10062016.pdf


After you apply for a CLSS linked home loan, your form will be duly verified and then it will be sent back to the lending company with an acceptance slip or a rejection slip. The home loan which will be disbursed to you will already be subsidized since the government is subsidising the loan before disbursal. Usually it takes 30 days to 45 days for CNAs, HUDCO and NHB to review a CLSS-linked home loan application. The lender usually disburses the loan subsidy amount to you when your application is approved and the amount is received by them.


If you want to contact the CLSS scheme stakeholders, you can contact them at the below nos.
 

CLSS Toll-Free Helpline Numbers
NHB: 1800-11-3377, 1800-11-3388
HUDCO: 1800-11-6163 

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