Cap for 1% interest subsidy raised – Should we cheer?

Recently, Union Cabinet has decided to increase the cap for availing 1% subsidy on home loans. For poor and middle class people to whom owning a house is a big dream, it will be a relief as it will partially compensate for the ever increasing interest rates. The subsidy would now be available for home loans up to Rs. 15 lakhs compared to current limit of Rs. 10 lakhs. The eligibility criteria with regards to cost of house has been increased from current Rs. 20 lakhs to Rs. 25 lakhs. This applies to all home loans availed through scheduled commercial banks and HFCs.

Under this scheme, subsidy would be available only if:

  1. the property price is Rs. 25 lakhs or less
  2. the  loan amount is Rs. 15 lakhs or less
  3. you are a new borrower and not an existing customer

In a related news, Govt. is also planning to provide guarantee for home loans up to Rs. 5 lakhs. Under the scheme, the government will reimburse up to 90% of the loan amount to the banks in case the poor default on these loans. The banks will be reimbursed 90% for loans of Rs. 2 lakhs or less and 85% for loans up to Rs. 5 lakhs. This would be available to those earning up to Rs. 10,000 per month in the cities and for properties that match government specifications.


The above schemes are geared towards the urban poor and to promote low cost housing in cities. However, in cities property prices are sky high and hardly any property would be available for this price tag of 25 lakhs and hence its not that beneficial to the people living there. Further, as it is only for the new borrowers, the existing borrowers will not get any benefit and will continue to pay the high interest.

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