Government to hike limit on 1-% home loan waiver

In an attempt to mitigate the effects of continuous policy interest rate hikes by the Reserve Bank of India on home loan borrowers, the union government is set to hike the limits on the 1-per cent subsidy it provides to smaller borrowers.

So far, the interest subsidy has been limited to loans up to Rs10 lakh on properties worth not more than Rs20 lakh. Now, it will be extended to loans up to Rs15 lakh for properties worth up to Rs25 lakh.

Under a scheme introduced in 2009, home loan borrowers get one per cent interest subsidy on bank loans of up to Rs10 lakh, provided the cost of the house does not exceed Rs20 lakh. The new move will slightly raise the barriers on the subsidy.

The proposal is expected to be passed by the union cabinet any day now, between today and Thursday. This will bring some Diwali cheer to borrowers saddled with ever-increasing equated monthly instalments (EMIs), which they can barely afford. However, most analysts feel the move is more symbolic than real, considering the massive interest rate hikes effected since January 2010.

Finance minister Pranab Mukherjee had already announced this proposal in his end-February annual budget plan; but it has taken some nine months to be effected while the RBI has been continually raising interest rates in its effort to rein in galloping inflation.

This inflation is of course another factor why the hike in subsidy limits won't bring a great deal of cheer to those saddled with home loans, which currently carry interest of 10-15 per cent.