In a major boost for government employees, the finance minister Nirmala Sitharaman on September 14, 2019, announced that the interest rate on house-building advance for all government employees, will be lowered and linked with 10-year G-Sec yields.

A Government Security (G-Sec) is a tradeable instrument issued by the central or the state government. It acknowledges the government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called government bonds or dated securities with an original maturity of one year or more). In India, the central government issues both, treasury bills and bonds or dated securities while the state governments issue only bonds or dated securities, which are called the State Development Loans (SDLs). G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments. The yield is at present 6.44 per cent. 

Central Govt Staff Can Now Get Rs 25 Lakh Home Loan At 8.5% Interest Rate

While buying a house remains a dream for many, the government has made this dream more achievable for central government employees. According to a recent notification, central government employees can now take an advance of up to Rs 25 lakh for construction or purchase of a house at a simple interest rate of 8.5 per cent. Earlier, the maximum borrowing limit was Rs 7.5 lakh with interest rate slabs ranging from 6 per cent to 9.50 per cent.

With this change around Rs 11 lakh can 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. For example, if a loan of Rs 25 lakh is taken for 20 years at the prevailing rate 8.35 per cent (compound interest) from public banks, 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. However, if the same amount is borrowed under the HBA at 8.5 per cent (simple interest) for 20 years, the total money that has to be paid comes to around Rs 40.84 lakh, including interest component of Rs 15.84 lakh.

Apart from this, the cost ceiling limit of the house which an employee can construct or purchase has also been revised to Rs 1 crore with a provision of upward revision of 25 per cent. The earlier cost ceiling limit was Rs 30 lakh.

Other terms and conditions

*Employees can borrow upto 34 months of their basic pay, subject to a maximum of Rs 25 lakh, or the cost of the house/flat or the amount according to repaying capacity, whichever is the least for new construction/purchase of new house/flat.

*Both husband and wife, if they are Central government employees, are now eligible to avail of benefits under the HBA scheme either jointly or separately. Earlier, only one spouse was eligible for such facility.

*Individuals can transfer their loan from financial institutions/banks to the HBA.

*The amount for expansion of the house has also been revised to a maximum of Rs 10 lakh, against the earlier Rs 1.8 lakh limit.

*For a temporary employee, who wants to avail of benefits under this scheme, they must have completed 10 years of service. Permanent employees can apply anytime.

*An applicant should not own any property (house, flat or any land) while applying for the HBA.

*The ownership title should be on the applicant's name or his spouse's name.

*The employee has to insure the house on completion or purchase of the house, at his own cost with LIC or its associated units. The insurance should be taken for a sum not less than the amount of advance against damage by fire, flood and lightning and has to be continued till the loan is fully repaid.

Recovery of HBA

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.  In case the employee is retiring before the tenure ends, repayment can be made out of retirement gratuity.

Moreover, the house purchased or constructed with HBA has to be mortgaged in favor of the President of India. After completion of the recovery of the advance together with interest, the mortgage deed is re-conveyed in a proper manner.