It is a fact that after implementation of Sixth Pay Commission recommendations House Building Advance (called as HBA) granted by Central Government to its employees lost its charm as it is no longer a house loan commensurate with the present cost of construction.
The very term “pay in pay band” put in the place of “Basic Pay” after 6cpc implementation has made most of the damage as it has reduced the eligible amount of HBA. Alternatively, Pay in Pay band plus Grade pay should have been taken for calculation of eligible amount of HBA, as Pay in pay band + Grade pay form the Basic Pay of an employee after 6CPC for all purposes (For example DA, HRA, NPA etc are calculated only based on pay in pay band + grade pay).
So, it is a common grievance of all Central Government Employees that HBA should be based pay in band and Grade Pay.
The remaining damage for reduction of eligible amount of HBA are done by the conditions after 6CPC that Maximum ceiling of HBA is Rs.7.5 lakhs and that number of times of pay in pay band taken for calculating eligible HBA amount is 34 times only.
Why HBA is better than House Loan granted by PSU banks?
The very reason for which a Central Government Employee wanted to go for HBA rather than house loan granted by all PSU Banks and financial Institutions is the rate of interest charged for House Loan. While House Building Advance Scheme of Central Government charges interest ranging from 6.5% to 9.5% from the year 2003 depending on HBA amount sanctioned, PSU banks or financial institutions charge not less than 10.5 % presently. The other major benefit in the House Building Advance Scheme is the Quantum of monthly recovery. While PSU Banks recovers part of Principal and Interest at the same time on monthly basis which is called as EMI, HBA Scheme allows for recovery of principal amount only, for a period up to 180 months and interest thereafter for a period not exceeding 60 months. So, the quantum of monthly recovery amount for a particular loan amount under HBA scheme would be very lesser than EMI charged for same Loan amount taken from PSU banks.
We hope Government would come up with suitable amendments to rectify this common grievance of central government employees soon.
In fact, as per 6CPC recommendations the existing HBA scheme should be replaced with a New HBA Scheme as per which Government should tie up with leading PSU Banks for grant of housing loan at competitive rates to Central Government Employees and out of the interest charged by the banks for the housing loan, 2% of the interest should be subsidized by the Central Government (In the case of employees with disability the interest subsidy will be 4%).
However, this new HBA scheme is yet take off and in the mean time Ministry of Urban Development has issued Office Memorandum No: I-17011/11(4)/2008-H.III dated 27.11.2008 for revision in house building advance in which Maximum ceiling for cost of construction, HBA amount ceiling and number of times of pay in pay band to calculate eligible HBA have been revised to Rs.30 lakhs, Rs.7.5 lakhs and 34 times of pay in pay band respectively.
The maximum loan amount that can be granted to Central Government Employees under House Building Advance Rules after implementation of Sixth Pay Commission Recommendations is Rs.7.5 Lakhs.
We have already analyzed the benefits of House Building Advance in the aspects of low rate of interest and lesser monthly recovery in our previous article on HBA.
Click here to read Why HBA is better than House Loan granted by PSU banks?
But the maximum ceiling of Rs.7.5 lakh fixed for HBA Scheme is really a negative aspect as it would never meet out the cost of construction in this inflationary trend.
In this scenario, will it not be fine if we take full advantage of availing NBA, yet meet out the Cost of Construction?
How take to full advantage of HBA, yet fully meet out Cost of Construction?
Many of Central Government Employees drop the idea of constructing a house or acquiring a house property for the reasons that HBA granted does not meet out the cost of house.
Some of them borrow entire loan from PSU banks. Alternatively, it would be better to create second charge for receipt of additional loan from PSU banks in addition to HBA to meet out the cost.
We feel that both of these options are not correct as Government permits second mortgage viz, receipt of additional loan over and above the HBA granted by it. So, it would be prudent to go for a second loan over and above the HBA to meet out the cost.
For instance, you are eligible for the maximum HBA amount of Rs.7.5 lakh. The maximum ceiling amount for cost construction or cost of house in the case of acquiring ready built house or flat is Rs.30 lakh. If you have planned to construct or buy a house at the cost of Rs.30 lakhs you can very well avail second loan for the differential amount of Rs.22.5 lakh depending upon the procedures followed by the bank that provides the second loan.
Second Mortgage:
Central Government employees can receive additional loan over and above the HBA by creating second charge on the property. The conditions are:
- The second loan must be obtained from only from Banking Institutions (PSU Banks and private banks approved for house loan operations)
- Financial Corporations set up by State Governments
- Co-operative housing finance Institutions
- Public Limited Companies formed and registered in India and approved for house loan operations for National Housing Bank viz., HDFC, Canfin Homes Ltd etc.
- The amount of HBA granted and the second loan received put together should not exceed prescribed cost ceiling (Rs.30 lakhs)
- The second charge created can be transferred by the employee to another financial Institution based on market conditions
- However, at any point of time there should only one second charge. In other words, at any point of time there should not be more than one lending agency other than Government.
The following Office Memorandums issued by Government govern Creation of Second Charge on the House Property for which HBA is sanctioned by Government:
O.M.No: I/17011/4/82-H-III, dated 02.12.1982
O.M.No: I/17011/4/82-H-III, dated 19.09.1996
O.No: I-17011/11/1/2003-H,III, dated 04.09.2003
The second charge created can be transferred by the employee to another financial Institution based on market conditions
ReplyDeleteWHERE CAN WE GET COPIES OF THE LETTER PROVIDING THIS CLAUSE