People in India like purchasing plots and as an investment or for building a house. If you want to buy a piece of land, then you might not be eligible for a home loan. In such a case, getting a plot loan or land loan can be a great credit option for you. Although the interest rates, documentation, and the process are similar to that of a home loan, the two are a little different.
This guide provides you with some facts related to the land loan.
5 Facts related to the land loan are listed as follows:
Although the plot/land loan and property/home loan are considered similar, there are various misconceptions and facts related to both that distinguish them. Ensure to understand the differences before applying a loan for plot purchase.
1. No tax benefits on land loan: One of the biggest misconceptions about a land loan is that it provides tax benefits. So, keep in mind that unlike a home loan, the loan for plot purchase does not qualify for tax benefits. Any interest paid towards a land loan before completion of construction can not claim tax benefits like a house loan.
2. Loan to value (LTV) ratio: 80% is the general LTV for house loans. The plot loans are not much different and offer 60%-70% LTV. The range is variable according to the lenders as the determined property value is decided by them independently.
3. Higher EMIs: Land loan interest rates and home loan interest rates are similar, but the EMI of a land/plot loan is usually higher than that of home loan. The reason for the difference in EMI value is due to the low tenure duration of a pure land loan.
4. Prepayment charges: Mostly, home loans are provided at 0% prepayment charges; however, in case of a plot loan, you might get a penalty for making a prepayment. The value of prepayment charges is regulated according to the policies of the lenders. Mostly, the amount of penalty is less or even zero.
5. Legal Compliance: Getting land and making legal compliance is much more complicated in comparison to flats. There are various kinds of complications, like a legal heir issue, land conversion issue. So, to be on a safer side, you can opt for purchasing a developed plot, as getting a loan for a developed plot is easier comparatively.
A land/plot loan is similar to a home loan due to various factors like interest rates, but there are some differences in both of them. Taking the help of the above guide can help you in avoiding conflicts due to lack of knowledge. So, before applying a loan for plot, make sure to check out some facts regarding plot loans. Moreover, land loan interest rates are attractive, but short tenure increases the monthly EMI amount. So, make sure to use a land loan EMI calculator. Also, before purchasing a property, ensure that it does not have legal issues over land ownership.