A Rs 25 lakh home loan from a bank for 20 years will mean a customer pays up Rs 26.50 lakh as interest; if it is house building advance, the interest amount will be just Rs 15.84 lakh

New Delhi: Central government employees can now take advance up to Rs 25 lakhs for construction or purchase of house at a simple interest rate of 8.50 percent, a move aimed at giving fillip to the housing sector, an official release said on Thursday.

Earlier, the maximum borrowing limit was Rs 7.50 lakh with interest rate slabs ranging from 6 percent to 9.50 percent.

A senior official in the Housing and Urban Affairs Ministry said around Rs 11 lakh could be saved by availing House Building Advance (HBA) as compared to borrowing from lending institutions on a Rs 25-lakh loan for 20-years period.

He explained that if loan of Rs 25 lakh is taken for 20 years at the prevailing rate 8.35 percent (compound interest) from banks like the SBI, the monthly installment comes to Rs 21,459.

"The total amount to be paid at the end of 20 years comes to around Rs 51.50 lakh, including interest component of Rs 26.50 lakh," he added.

However, if the same amount is borrowed under the HBA at 8.50 percent (simple interest) for 20 years, the monthly installment comes to Rs 13,890 for first 15 years and Rs 26,411 per month for the remaining period, he said.

"The total money that have to paid comes to around Rs 40.84 lakh, including interest component of Rs 15.84 lakh."

The Housing and Urban Affairs Ministry makes rules for HBA for central government employees from time to time.

"Employee can borrow up to 34 months of the basic pay subject to a maximum of Rs 25 lakhs, or cost of the house/ flat, or the amount according to repaying capacity, whichever is the least for new construction/ purchase of new house/ flat," the release said, quoting the revised HBA rules.

Earlier, the limit was only Rs 7.50 lakh, it added.

Interest rate on the HBA has been fixed at 8.50 percent (simple interest) in place of earlier four slabs ranging from 6 percent to 9.50 percent, it said, adding the rate will be reviewed every three years.

The amount for expansion of the house has also been revised to a maximum of Rs 10 lakh against the earlier Rs 1.80 lakh.

The cost ceiling limit of the house which an employee can construct/ purchase has also been revised to Rs 1 crore with a provision of upward revision of 25 percent. The earlier cost ceiling limit was Rs 30 lakh, it said.

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 such facility.

There is also provision for individuals migrating from home loans taken from financial institutions/ banks to HBA, the release said.

The methodology of recovery of the HBA will continue as per the existing pattern -- recovery of principal first in the first 15 years in 180 monthly installments, and interest thereafter in next five years in 60 monthly installments.

"This attractive package is expected to incentivise the government employee to buy house/ flat by taking the revised HBA along with other bank loans, if required. This will give a fillip to the housing infrastructure sector," the release said.