How Does the Pradhan Mantri Awas Yojana Work?

How Does the Pradhan Mantri Awas Yojana Work?

Real-estate industry | May 5, 2022 | 10 min read

Under the ‘Housing for All’ mission in 2015, the government launched the Pradhan Mantri Awas Yojana (PMAY). The purpose of this scheme is to promote affordable and sustainable housing for the urban poor and help them lead dignified lives. The scheme’s main proposal is to create two crore homes for the low and middle-income families and the economically weaker sections. Water connectivity, proper toilets, and such essentials are also aimed to be provided with the PMAY scheme. The two kinds of PMAY schemes are Pradhan Mantri Awas Yojana Gramin and Pradhan Mantri Awas Yojana Urban for rural and urban housing, respectively.

Eligibility criteria for the Pradhan Mantri Awas Yojana

The eligibility creates for this scheme is:

  • The beneficiary and their family must not own property in any region of the country.
  • The annual income must not exceed Rs. 18 lakhs for a person to be eligible for the PMAY scheme.
  • The beneficiary’s family should not have received any central support under any housing scheme by the Indian Government.
  • A residence that has already been built cannot use the benefits of the PMAY scheme.
  • The ground floor housing will be granted on a priority basis to senior or disabled persons.
  • The coverage of the scheme includes all statutory towns and towns announced after Census 2011.
  • Under joint application, either the person or their spouse may be eligible for the subsidy.

How does Pradhan Mantri Awas Yojana work?

The opportunity for buying homes at a cheaper rate by availing of interest subsidies in India is provided through the PMAY and the credit-linked subsidy scheme. Under the Credit Linked Subsidy Scheme (CLSS), the economically weaker sections and the middle-income groups can get reduced EMIs on their home loans.

CLSS – Weaker Sections and Lower Income Groups

Those who have a household income up to Rs. 3 lakh a year come under the economically weaker category and those whose annual income is between Rs. 3 lakhs and Rs. 6 lakhs come under the low-income category. The homebuyers in the weaker sections and low-income groups can get a subsidy of 6.5% for 20 years or the home loan’s entire tenure (whichever is lower) under the Pradhan Mantri Awas Yojana.

The procedure for getting the benefits of this scheme if you belong to this category is to go to a bank or an NBFC for a home loan, the lender from whom you are availing the loan will initially credit the incentive amount to your account. Then the EMIs for your home loan is lowered by the lender according to your credited value. Women, SC/STs, minorities, persons with disabilities, and backward classes are given preferential treatment in both of these categories.

CLSS – Middle Income Groups

The Middle-income group beneficiaries are split into the MIG I and MIG II sections. The MIG I section includes those beneficiaries whose household income is between Rs. 6 lakhs to Rs. 12 lakhs annually. The MIG II section includes those beneficiaries whose household income is between Rs. 12 lakhs to Rs. 18 lakhs annually. 

The interest discount availed by the MIG I section is 4%, while that availed by the MIG II section is 3%. Home loan tenure can be extended up to 20 years for both sections. The home loan amount for the MIG I section is Rs. 9 lakhs while it is Rs. 12 lakhs for the MIG II section.

Let’s take an example:

A person in the MIG II category wants to buy a home costing Rs. 60 lakhs. The down payment for this home will be 10%, i.e., Rs 6 lakh, and the remaining Rs. 52 lakhs would be arranged through a loan. If the Pradhan Mantri Awas Yojana scheme is not applicable here, the lender’s home loan interest will be applied to Rs. 52 lakhs.

Under the PMAY scheme, the 3% subsidy would be applied to Rs 12 lakh. Hence the interest rate of the lender’s home loan will be applied to the remaining Rs. 40 lakh.

Calculation of interest subsidy under CLSS

Calculation of the monthly payback obligation is essential when choosing any EMI payment. A PMAY EMI calculator can be used to know your payback obligation for each month. This will also allow for making an intelligent and informed borrowing solution. However, the calculation of home loan EMI through a calculator with PMAY subsidy can only be done once you know if you are a beneficiary of the Pradhan Mantri Awas Yojana – Urban (PMAY- U) or Pradhan Mantri Awas Yojana – Gramin (PMAY-G).

The Pradhan Mantri Awas Yojana (PMAY) subsidies can also be checked very quickly and conveniently through a Home Loan EMI calculator.

The PMAY eligibility can be checked online by following these steps:

  • Entering the entire household’s total income.
  • Choosing the home loan duration (less than or equal to 20 years).
  • Check for interest subsidies by entering the home loan amount.

After these steps are complete, the total amount of subsidies available will be calculated and displayed on your screen.

Conclusion

The Pradhan Mantri Awas Yojana was launched by the government to provide housing to the urban poor and provide housing for all. In the budget of 2017, affordable housing was given infrastructure status to help developers receive the associated benefits of the scheme.

However, exploring the affordable housing segment is still a risk even to first-time homebuyers because of the timely delivery of the house which is now getting mitigated with time. The previously allocated 3 years to complete the projects have now been increased to 5 years.

HomeCapital is a technology company that is on a mission of escalating homeownership to a billion home buyers. To fulfill this mission, we have created India’s first Home Down Payment Assistance (DPA) program. The assistance provided under the program is interest-free and the completely digital application process allows for faster and smoother transactions. Our program reduces your risk and doesn’t apply a lien on your house or affect your home loan eligibility.

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