Govt Rolls Out CLSS-MIG to Benefit Home Loan Borrowers

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Owning a home is the dream of many including my friend Ganesh Yadav, who is a 30-year old marketing professional working in the Capital City of India i.e New Delhi. He has been into his profession for more than 5 years. To realize his home dream, Ganesh had applied at several lenders in the city. Some agreed to lend him to encash his home wish, but the interest rate charged by them was very high. Due to family pressure or any other reason, he was forced to accept one of the offers, involving an interest rate of 10.50% per annum. On the basis of his financials, the bank lent him a loan of ₹28 lakhs for a period of 20 years. It was about a year ago when he took a home loan from XYZ Bank. He is paying the monthly EMI of ₹27,955 as of now. The interest outgo on his loan is expected to jump up to ₹39,09,113 over the course of the tenure, resulting in an overall repayment of ₹67,09,113. Ganesh earns a remuneration of ₹1,00,000 per month. Ganesh, unfortunately, missed out on a great opportunity as he could not wait further for a bonanza offer that has now come to bring a smile on your face. It’s the Credit Linked Subsidy Scheme (CLSS) specifically designed for Middle Income Group (MIG) of the government which is grabbing the headlines.

Details of CLSS-MIG

The scheme would allow borrowers with incomes ranging above ₹6 lakhs-18 lakhs in a year to avail interest subsidy on buying their first home under Pradhan Mantri Awas Yojana (PMAY). The scheme is targeted for middle-income groups (MIG). As per the scheme, the loan tenure is stipulated to be 20 years and the one preferred by a borrower, whichever happens, to be lower. People earning ₹12 lakhs and ₹18 lakhs a year are eligible for interest subsidy on loans for construction/acquisition of house with the carpet area of 90 square meters and 110 square meters, respectively.

For People with Income of 12 lakhs/Year

An interest subsidy of 4% on a principal component of ₹9 lakhs awaits people of this income category. The loan amount exceeding ₹9 lakhs will be charged at the normal interest rate.

For People with Income of 18 lakhs/Year

People falling under this income category can avail an interest subsidy of 3% on a principal home loan component of ₹12 lakhs. Like the above case, here also the loan amount exceeding ₹12 lakhs will be serviced at the normal rate.

The total interest subsidy accruing on these loan amounts will be paid to the beneficiaries up front in one go there by reducing the burden of Equated Monthly Instalment (EMI).

No Processing Fee

Beneficiaries can apply directly to Primary Lending Institutions (PLIs) to avail the interest subsidy. PLIs, after verifying the application, would sanction the loan. Subsequently, you can claim the subsidy from Central Nodal Agencies (CNAs). No processing fee will be charged by PLIs from the applicants under CLSS. The best part of the scheme is the zero processing fee, further lowering the house acquisition or construction cost.

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Benefits for Women, Youth and Weaker Section of the Society

The scope of the scheme is far and wide as it covers even the unmarried and earning young adults. These set of people are eligible to avail the interest subsidy benefit under the scheme for the purposes of buying or constructing a new home including repurchase. The guidelines state that the women along with widows, single working women, scheduled castes, scheduled Tribes, backward classes, transgender and differently abled people are to be given the preference for interest subsidy.

Details for CLSS (EWS/LIG)

As you saw above, the new CLSS (MIG) keeps in its wing the people earning upto 12 lakh-18 lakh annually. However, if we talk about the June-2015 launched CLSS component of PMAY (Urban), you could find a different target segment. This component was specifically designed for Economically Weaker Sections (EWS) and Low Income Group (LIG), covering urban poor with an annual income of ₹3 lakh and ₹6 lakh, respectively. As per CLSS (EWS/LIG), a 6.50% interest subsidy on a loan of upto ₹6 lakh is applicable. One good thing that has come across in the scheme is the extension of the loan tenure, which has now gone up to 20 years from the earlier time frame of 15 years, allowing smooth repayment of the loan. Under this component, each beneficiary is entitled to a total interest subsidy of ₹2.30 lakh.

Come to These Financial Institutions to Avail CLSS MIG

Around 15 scheduled banks, 45 housing finance companies, 2 regional rural banks, 4 Small Finance Banks, 3 Non­-Banking Finance Companies (NBFCs) and 1 Cooperative Bank have recently inked an agreement with National Housing Bank (NHB) to implement CLSS. The total number of lending institutions for the scheme stands at 70.

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Let us shift our gear back to Ganesh and see how much he could have gained via CLSS-MIG

Home Loan of ₹28 Lakhs Under PMAY (Assuming normal interest rate is 8.85% per annum and loan tenure of 20 years) 

Income Category (In ₹)Interest Subsidy (In % p.a.)Servicing of Remaining Loan Portion (In % p.a.)EMI (In ₹)Total Interest (In ₹)Total Repayment (In ₹)
12 LakhsOn ₹9 Lakhs-4.85On ₹19 Lakhs-8.855,865+16,912=22,7775,07,667+21,58,863=26,66,53014,07,667+40,58,863=54,66,530
18 LakhsOn ₹12 Lakhs-5.85On ₹16 Lakhs-8.858,494+ 14,242=22,7368,38,477+18,17,990=26,56,46720,38,477+34,17,990=54,56,467

Ganesh is losing out on an affordable home loan experience by a huge margin. If Ganesh had waited for CLSS-MIG, he could have reduced the EMI liability by ₹5,178 and interest repayment by a massive ₹12,42,583. The savings of the said amount could have been used to fulfill other frontiers of life.

But your saving could be different compared to Ganesh. So, go and grab the offer, which could result in the saving of just above 2,000 bucks in EMI and 5 lakhs or more in the overall interest repayments for a 20-year home loan given the existing interest rate scenario in the market.

So, all you first time home buyers, PMAY is all set to roll out a red carpet on your arrival to your dream home. Avail the scheme and enjoy a great stay in your house, resulting in a huge amount of savings and thereby preventing your pocket against the attack of inflation.