Central staff to get up to Rs25 lakh in house building advance at 8.5% simple interest rate

The central government has revised upwards the House Building Advance (HBA) rules for its employees, incorporating the accepted recommendations of the 7th Pay Commission. 

Accordingly, the total amount of advance that a central government employee can borrow from government now stands at Rs25 lakh against Rs7.5 lakh earlier. 

An employee can up to borrow 34 months of the basic pay subject to a maximum of Rs25 lakh, or the actual cost of the house/flat, whichever is lower, according to repaying capacity.

This will be available for new construction/purchase of new house/flat. 

Similarly, central staff can now get up to Rs10 lakh or 34 months' basic pay as advance for expansion or renovation of the house. This amount was earlier Rs1.80 lakh.

The cost ceiling limit of the house which an employee can construct/ purchase has been revised to Rs1 crore with a proviso of upward revision of 25 per cent in deserving cases. The earlier cost ceiling limit was Rs30 lakh.

Both spouses, if they are central government employees, are now eligible to take HBA either jointly, or separately. Earlier only one spouse was eligible for House Building Advance.

There is a provision for individuals migrating from home loans taken from financial institutions/ banks to HBA, if they so desire.

The provision for availing 'second charge' on the house for taking loans to fund balance amount from banks/ financial institutions has been simplified considerably. 'No Objection Certificate' will be issued along with sanction order of HBA, on employee's declaration.

Henceforth, the rate of interest on Housing Building Advance shall only be at a uniform rate of 8.50 per cent at simple interest (in place of the earlier four slabs of  bearing interest rates ranging from 6 per cent to 9.50 per cent for different slabs of HBA which ranged from Rs50,000 to Rs7,50,000) .

The rate of interest on HBA will be reviewed every three years. All cases of subsequent tranches/installments of HBA being taken by the employee in different financial years shall be governed by the applicable rate of interest in the year in which the HBA was sanctioned, in the event of change in the rate of interest. HBA is admissible to an employee only once in a life time.

The government also removed a clause of adding a higher rate of interest at 2.5 per cent above the prescribed rate during sanction of House Building Advance. Earlier, the employee was sanctioned an advance at an interest rate of 2.5 per cent above the scheduled rates with the stipulation that if conditions attached to the sanction, including those relating to the recovery of amount, are fulfilled to the complete satisfaction of the competent authority, a rebate of interest to the extent of 2.5 per cent was allowed.

The methodology of recovery of HBA shall continue as per the existing pattern - recovery of principal first in the first fifteen years in 180 monthly installments and interest thereafter in next five years in 60 monthly installments.

The house/flat constructed/purchased with the help of House Building Advance can be insured with the private insurance companies which are approved by Insurance Regulatory Development Authority (IRDA).

The increase in HBA limit combined with falling bank interest rates is expected to give a fillip to the housing infrastructure sector.