The Union cabinet decided on Tuesday to extend by one year the scheme to fund 1% interest on housing loans up to Rs. 15 lakh where the cost of the house does not exceed Rs. 25 lakh.
This will cost exchequer Rs. 400 crore.
"When interest rates have risen, even 1% relief is a relief for the middle class and lower middle class," home minister P Chidambaram said.
He said the subsidy limit for an individual borrower would be Rs. 14,912 for a loan of Rs. 15 lakh and Rs. 9,925 for a loan of Rs. 10 lakh.
HT first reported on the extension of the scheme on June 30.
Chidambaram said a large number of people have benefited from the interest subsidy and "whoever borrows now will get the benefit of 1%".
Housing demand has fallen due to high interest rates since the last couple of years and almost all the realty firms are witnessing a profit fall.