The National Housing Bank (NHB) has reduced the rate interest rates for its special `refinance scheme for urban, low-income housing' for loans up to Rs 5 lakh by 0.75 per cent to 1 per cent.

The interest rate on NHB's refinance will now be at 9 per cent per year on loans up to Rs 2 lakh compared to 10 per cent earlier and 9.25 per cent per annum for loans between Rs 2 lakh to Rs 5 lakh as against to 10 per cent earlier.

"We are targetting at least 40 per cent of total refinancing under this scheme out of the target of Rs 17,000 crore in this financial year, translating to about Rs 7,500 crore," said RV Verma, CMD of NHB.

The scheme is designed to help primary lending institutions (PLI) lending to the lower-income groups in the urban areas in the country. The payment is also allowed under the scheme without any prepayment levy.

The regulator said that the primary lending institutions will pass on to the benefits of the rate cut to the borrowers in the form of loans with longer tenure at lower fixed rates.