Budget Buzz: Can interest subvention schemes help you buy properties at cheaper rates?

In a bid to attract homebuyers, real estate players often roll out schemes to boost their sales while making home-buying a convenient experience. Interest subvention is one such scheme targeted at home buyers availing of home loans. 

There is also a buzz that the government will improvise this scheme and come up with new criteria to get the most of from the scheme.

Atul Monga, CEO and Co-founder of BASIC Home Loan, said, “Many policy changes are expected in the upcoming budget to expand the scheme's reach and effectiveness. Key improvements expected are an increase in the subsidy percentage rates, broader eligibility criteria, and additional incentives for the purchase of green home loans to promote sustainable living. These improvements are expected to make home buying and property acquisition more accessible for middle and lower-income families. Along with these improvements, there could be a streamlined application process to enhance quicker disbursement and timely assistance to homebuyers.” 

The interest subvention scheme is essentially a three-way agreement between the bank, the builder, and the homebuyer wherein the buyer pays an initial booking amount or down payment and the bank pays the remaining balance to the builder as a home loan. The interest on the home loan is borne by the builder until the buyer receives possession or as per the terms mentioned in their agreement. The bank releases the payment to the developer based to the construction schedule.

Adhil Shetty, CEO of BankBazaar.com, said, “This type of scheme may be beneficial for a home loan borrower as the burden of home loan interest lies with the builder, and, as a result, can prompt timely delivery of possession. The loan, instead of being disbursed in one shot, is disbursed in a staggered manner based on the construction stage.”

“On the other hand, this scheme may not be as economically viable for the home buyer as developers may add the interest to the property cost, making it expensive. Additionally, if builders fail to pay the agreed interest to the bank on time, it can negatively affect the credit score of the buyer in whose name the loan has been sanctioned. A damaged credit score can take time to rebuild and may hurt the borrower’s future borrowing capacity,” added Shetty.

There are certain points borrowers must keep in mind with regard to the interest subvention scheme. The scheme may sometimes be offered with a cut-off date for the projected possession, which is mentioned in the agreement. Any delay in the project construction or possession post the cut-off date may require the home loan borrower to shell out more money. If the borrower is staying in rented accommodation, they’d be paying rent, as well as the loan EMI.

“It is advisable to understand and obtain clarity on the terms and conditions of the scheme. Research about the builder and seek the guidance of an expert if required before committing to the scheme,” said Shetty.