1% interest subsidy on small home loans continued till 2013

The government has extended interest subvention scheme on individual housing loans to the year 2012-13. Home loan borrowers can have loans up to Rs 15 lakhs with 1% interest subsidy for one year provided cost of house does not exceed Rs 25 lakhs. The extension was approved by the cabinet yesterday.

Originally introduced in 2009-10 for housing loans up to Rs 10 lakhs, the limit was enhanced to Rs 15 lakhs for the year 2011-12. The scheme can be availed through home loans from Scheduled Commercial Banks like SBI and Housing Finance Companies registered with the National Housing Bank, which is the nodal agency for the scheme.

Interest subvention will be available for construction or purchase of a new house or extension of an existing house. The interest rebate of 1% will be applicable on the first twelve months installments on the lender's interest rate. Subsidy limit has been capped at Rs 14,912 on a loan of Rs 15 lakhs and Rs 9,925 on a loan of Rs 10 lakhs. The lender will adjust for the subsidy amount upfront in the outstanding principal. This subsidy applies to both fixed rate and floating rate loans.

The scheme applies to all housing loans not exceeding the limits stipulated except those extended for constructing farm houses, acquisition of residential plot, only repairs to existing house and to NRIs and bank staff at concessional rates.  The government's objective is to improve home ownership among the middle and lower income groups, making it affordable to eligible borrowers and thus generate demand for such loans. A provision of Rs 400 crores has been made for implementing the scheme in 2012-13.


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