T he Prime Minister, it appears, wants to ensure every earning individual has a home of her/his own. A subsidy scheme has reportedly been finalised under the Prime Minister Awas Yojana to offer an interest rate subsidy ranging from 6.5% for individuals earning up to ₹6 lakh per year to 3% for those earning up to ₹18 lakh annually. What this means is that an interest rate of about 10% on a home loan will now be lowered to anywhere between 3.5% to 7%,depending on your income slab.
The subsidy is applicable on 20 year loans, but up to prescribed limits of the principal amount — a ceiling of ₹12 lakh for those with an income of up to ₹18 lakh. This is bound to make homes more affordable for a larger section of the Indian population, and might spur transactions in the mostly sluggish-for-a-while real estate market.
The subsidy scheme is a bonanza for young home buyers. By making homes affordable for young executives who would likely be starting their careers with salaries within the income band, it makes a lot of sense to invest in a home early. The combination of existing tax-breaks supplemented with the subsidy significantly lowers the real cost of acquisition. And even if you can’t afford a big house right away, consider a smaller place as an interim investment, till you can graduate to affording a larger home.
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The value created over time will definitely make a swap with a larger home far easier than an outright purchase in the future. So, grab that subsidy when it’s available. Good things don’t always last forever!
Former Editor, Outlook Business and Executive Editor, NDTV Profit, the writer is a personal finance expert. Mail him at propertyplus @thehindu.co.in