**Pradhan Mantri Awas Yojana EMI Calculator Calculating the Money That Can Be Saved by Purchasing Home Under PMAY**

**Pradhan Mantri Awas Yojana EMI Calculator Calculating the Money That Can Be Saved by Purchasing Home Under PMAY**

“Pradhan Mantri Awas Yojana” – It can be rightly termed as an ambitious project. A project of a mega-scale ever undertook by any Union Government of the Union of India. While the entire scheme received a positive feedback post-launch, the interest in this scheme seems to have received air after the Union Budget of 2017. After Arun Jaitley stated that PMAY will get infrastructure status, many developers in India have come forward with promotional material for the housing projects they are developing under the affordable housing scheme.

Well, developers actively promoting real estate that comes with government subsidy for interest against home loans – that’s something really new and really, really tempting!

It cannot be denied that real sector market is really difficult to play in because assets are truly immobile and illiquid. There may be serious problems for both ends – consumers and investors. Consumers are worried about high prices and of course, delayed possession remains one of the worst nightmares for end consumers because they usually depend on home loans for property purchase.

Similarly, the investors on the other hand have a serious problem that they need to deal with. They need to ensure that there is no oversupply. This will leave their funds locked because real estate is really illiquid.

So, how to cope with this problem? There is only one way: “developers need to stand up to their promise of delivering the properties as per schedule.” If the possession is not delayed for end-consumers, consumers will give a positive response because they will definitely go for government subsidy. However, developers also need to make sure that they adhere to the quality parameters and do not deliver sub-standard properties.

If there is a perfect equilibrium between what consumers want and what the developers promise to deliver, PMAY is destined to become a mega-success. The question is, “will that really happen?” With the type of cards the current Union Government is playing, anything is possible, really! So, we just have to wait and watch.

**Meanwhile…**

The hot fuss around the corner is government subsidy. What’s that subsidy amount in real money? We mean – “Give us goddamn figures – crude numbers man!” Did we steal your words?

Before we go into those numbers, did you know…

- People belonging to economically weaker sections (EWS) of the society with annual earnings not exceeding INR 3 lakhs are the target group for the PMAY?
- Belonging to the target group are the people belonging to LIG or low income group who do not have an annual income in excess of INR 6 lakhs?
- People with annual income not exceeding INR 12 lakhs have been included as target group for PMAY?
- And that people who have annual earning not in excess of INR 18 lakhs have also been brought under the hood of PMAY?

We guess you already knew all these things. Still… just as a refresher course, here is something else you need to know:

- The interest subsidy that the Union Government will provide is fixed irrespective of the loan amount that people take out under this scheme.
- When we say that interest subsidy remains constant irrespective of amount of loan, we actually mean that the loan amount for which the interest subsidy will be provided has been predetermined and hence, even if people take out loans more that the predetermined amount, they will not enjoy interest subsidy.

**Further clarification needed, right?**

Okay, we understand because, what we said just now actually confused us earlier. You know what? Sometimes, the lingo used by Government can be truly confusing and you will know it really better if you file taxes. Income Tax laws are SOOOOO confusing, aren’t they? Allow us to shed some light.

PMAY says the following:

- For EWS and LIG category people, 6.5% interest subsidy will be provided to those people who take out home loans not exceeding INR 6 lakhs. This means that the home loan amount exceeding INR 6 lakhs will attract normal market interest rate. Example? A person wants to take a home loan under PMAY and decides to go for a loan amount of 7 lakhs. For 6 lakhs, the person will get interest subsidy at 6.5% but for the rest 7 lakhs, he will have to pay the interest rate at market rate.
- For those who have annual income below or equal to INR 12 lakhs will be provided with 4% interest subsidy provided the loan amount is below or equal to INR 9 lakhs. Above that loan amount, a person needs to pay market interest rate.
- For those who have annual income below or equal to INR 18 lakhs will be provided with 3% interest subsidy provided the loan amount is below or equal to INR 12 lakhs. Above that loan amount, a person needs to pay market interest rate.
- Also, the loan repayment period NEEDS TO BE 20 YEARS or LESS.

**Now the big question: What will be the amount of government subsidy?**

You may be naturally inclined to think that the subsidy amount that will be given by the government will be the difference between the interest amount that stands with actual (market) interest rate and the interest amount that stands with subsidized interest rate. Bad News! You are wrong!

The whole concept is a tad more difficult than that.

In PMAY, the subsidy amount will be the NPV of subsidy amount that will be paid. NPV stands for Net Present Value. In order to get NPV, one has to first get hold of what is known as amortization schedule of loan. This is necessary because the subsidy amount will be calculated by taking into consideration the interest amount that will be accrued against every EMI or Equated Monthly Instalment. Once you have the amortization schedule, you can fire up an excel sheet, find the Fx function and use it for calculating subsidy amount.

What really will happen is that the subsidy amount will pull down the actual loan amount and because the actual loan amount decreases, interest amount will go down as well. But how is this calculation done? Let us find out…

We will take three examples…

**Example 1:**

We are considering a person in LIG group with annual income of INR 6 lakhs.

The person decides to take out a loan of INR 6 lakhs.

Market interest rate for the loan = 9%

Loan repayment period = 20 years.

With the aforementioned data:

EMI = INR 5,398

Therefore, the total interest that the person needs to pay is:

(5,398 x 12 x 20) – 600,000 = INR 695,520

Now, with 6.5% subsidy rate for interest, the Net Present Value of interest subsidy stands at INR 267,000.

So, the loan amount after revision will be INR 600,000 – INR 267,000 = INR 333,000

So, new loan amount stands at INR 333,000

Interest rate = 9%

Loan repayment period = 20 years.

With the new set of data:

EMI = INR 2,996

Therefore, the total interest that the person needs to pay is:

(2,996 x 12 x 20) – 333,000 = INR 386,040

So, EMI effectively reduces to INR 5,398 – INR 2,996 = INR 2,402

The interest amount to be paid reduced by INR 695,520 – INR 386,040 = INR 309,480.

**Example 2:**

Let us consider someone who has an annual income of INR 12 lakhs.

The person decides to take out a loan of INR 9 lakhs.

Market interest rate = 9%

Loan repayment period = 20 years.

With the aforementioned data:

EMI = INR 8,098

Therefore, the total interest that the person needs to pay is:

(8,098 x 12 x 20) – 600,000 = INR 10,43,520

Now, with 4% subsidy rate for interest, the Net Present Value of interest subsidy stands at INR 235,000.

So, the loan amount after revision will be INR 900,000 – INR 235,000 = INR 665,000

So, new loan amount stands at INR 665,000

Interest rate = 9%

Loan repayment period = 20 years.

With the new set of data:

EMI = INR 5,983

Therefore, the total interest that the person needs to pay is:

(5,983 x 12 x 20) – 665,000 = INR 770,920

So, EMI effectively reduces to INR 8,098 – INR 5,983 = INR 2,114

The interest amount to be paid reduced by INR 10,43,520 – INR 770,920 = INR 272,600.

**Example 3:**

Let us consider someone who has an annual income of INR 18 lakhs.

The person decides to take out a loan of INR 12 lakhs.

Market interest rate = 9%

Loan repayment period = 20 years.

With the aforementioned data:

EMI = INR 10,796

Therefore, the total interest that the person needs to pay is:

(10,796 x 12 x 20) – 12,00,000 = INR 13,91,040

Now, with 3% subsidy rate for interest, the Net Present Value of interest subsidy stands at INR 230,000.

So, the loan amount after revision will be INR 12,00,000 – INR 230,000 = INR 970,000

So, new loan amount stands at INR 970,000

Interest rate = 9%

Loan repayment period = 20 years.

With the new set of data:

EMI = INR 8,727

Therefore, the total interest that the person needs to pay is:

(8,727 x 12 x 20) – 970,000 = INR 11,24,480

So, EMI effectively reduces to INR 10,796 – INR 8,727 = INR 2,069

The interest amount to be paid reduced by INR 13,91,040 – INR 11,24,480 = INR 266,560.

**Conclusion**

So basically, PMAY interest subsidy is designed to bring down the effective loan amount and hence, the interest payable is reduced. You need to understand that we assumed the market interest rate to be 9%. However, the actual interest rate is around 8.5%. This means that you will have to pay even lower interest and lower EMI. But, make sure that you meet all the eligibility conditions PMAY. If you don’t fulfill the conditions, you cannot apply for loan under PMAY.

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