Should You Choose A Plot Loan Or A Composite Loan?
Ahousetakesalongtimetoconstruct.Fromhiringanarchitecttohiringconstruction workers,youwillhavealotonyourplate.Manyindividualsspendyearssaving,buyinga land,andthentakingoutamortgagetobuildtheiridealhouse.Whileothersborrowmoney topurchaseaplot,payitback,andultimatelyeventuallybuythelandonwhichtobuild theirnewhome.Ontheotherhand,somewisepeoplechooseacompositeloan,which enablesthemtoquicklyfulfiltheirambitionofowningaproperty.Wehaveprovided detaileddescriptionsofbothtypestoassistyouinmakingthebestloanchoice.
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Land or Plot Loan
Whenpurchasingapieceoflandforresidentialuse,financialorganisations(sometimes referredtoas"lenders")includingbanksandHousingFinanceCompanies(HFC)mayoffer aloancalleda"plotloan."Thedifferencebetweenahomeloanandaplotloanishowthe loanproceedsareused.Onlythepurchaseofaplotoflandmaybefundedbyaplotloan.A standardhomeloan,ontheotherhand,canbeusedtobuyapre-maderesidentialhome, suchasabungalow,flat,rowhouse,villa,orothertypeofbuilding.
Important Things to Keep in Mind before Applying for a Composite Loan
Acompositehomeloanrequiresyoutoconstructahomeonthepropertyyou boughtwithinacertainamountoftime.Ifyouarenotplanningtostartbuilding anytimesoon,gettingalandloanisabetteroption.
Mostfinancialinstitutionsexpectyoutostartbuildingthehousewithin1-2yearsas partoftheircompositelendingstrategy.Thelenderhastherighttoincreaseyour compositeloaninterestratesordemandthatyoucompletetherepaymentandclose theloanifyoudon'tdothis.
Ifyoutakeoutacompositeloan,youwon'tgettheentireloanamountinone installment.Typically,thelenderpaysitoutinthreephases.
Stage 1: Purchasingtheland
Stage 2: Thebeginningofthebuildingprocess
Stage 3 willbemadeavailableinphaseswhenworkgetsunderway.
Youmustgivethefinancingorganisationorbankacostbreakdownalongwithyour constructionideas.Thiswillmakeiteasiertodetermineyourcompositeloan's interestrateanddisbursementamount.
How Do Composite Loans Differ From Loans for Land or Plots?
Tofurthercomprehendthedistinctionbetweenacompositeloanandaplot/landloan, refertothefollowingtable:
Particulars
Composite Loan Land/ Plot Loan InterestRate Variesaccordingonthe bank,rangingfrom7.25%to 10.05%.
Loansforlandorplotshave interestratesthatrange from7.7%to13%, dependingonthebankand theloan'sprincipal.
ForeclosureCharges
TheRBIstatesthatall prepaymentandforeclosure feesdonotapplyto compositeloans.To understandtheprovisions governingprepayment& foreclosurechargesforyour compositeloan,youmust
Althoughbanksandfinancial institutionshavedifferent foreclosurefeesfor land/plotloans,they typicallyrangefrom2%to 5%plusanynecessarytaxes.
DurationofLoanRepayment
Purpose
taxadvantage
carefullystudyyourloan paperwork.
Forcompositeloans,the paybackperiodrangesfrom 10yearstoamaximumof30 years.
Acompositeloanisabank creditthatcoversboththe costoftheplotandthe projectedcostofbuildinga house.
Borrowersofcomposite loansmayclaimataxcredit onprincipalandinterest repaymentsofuptoRs.1.5 lakhsanduptoRs.2lakhs, respectively.
Loan-to-valueratio(LTV) Foracompositeloan,the LTVratiomayreach80%.
Mostbanksprovide maximumrepayment schedulesbetween10and 20years.
Onlyresidentiallandcanbe purchasedwithaland/plot loan.
Forplotloanstakenoutto purchaselandasalong-term investment,therearenotax advantages.
Forloansforlandorplots, theloantovalueratiois around70%.
Comparing the requirements for a composite loan with a land or plot loan
Toavoidhavingyourloanapplicationrejected,double-checkthequalifyingrequirementsif youintendtoapplyforacompositeorplotloan.Belowarethestandardeligibility requirementsforland/plotloansandcompositeloans:
Limitofage:18to70years
EmploymentType:SalariedorSelfEmployed
Forcompositeloans&land/plotloans,bothresidentIndiansandNRIsmayapply.
Individuallendersmayadditionallytakeintoaccountanapplicant'sincome,possessions, obligations,businesscontinuity(forbusinessowners),andjobhistorywhenconsidering eligibilityforaplotloan(forsalariedindividuals).
Conclusion: Composite Loan or Plot Loan?
Theproblemsofbuildingahomeareunique,rangingfromchoosingtheidealarchitectto takingintoaccountseveraloptionsforacompositehomeloan.Butwhenyourhouseturns outpreciselyhowyouenvisionedit,it'sallworthit.Aland/plotloan,ontheotherhand, enablesyoutobuyaplotoflandandeitherbuildyourhomeatyourownpaceorleaveitas along-terminvestment.Beforerequestingeithersortofloan,youmustbalancethe advantagesanddisadvantagesofeachoneinlightofyourneeds You’re