A lot of people in India want to buy land, especially investors from big cities as land is a scarce commodity and it sounds amazing to build your own house on a land instead of staying in apartments
However, do remember that there are no specific loans available to buy agricultural land. The only loans available to buy the plot are for “residential plots”, which means that if you take these “plot loans”, you need to also construct a house within 2-3 yrs of buying the plot. You can’t just buy a residential plot and skip building the house.
However, many people do that. Some intentionally and some out of ignorance.
- What exactly happens when you don’t build the house on a plot taking on a loan?
- Is there a penalty?
- Can there be any actions against you?
What happens if you don’t build the house on the Plot?
When you take a plot loan, it comes at a lower interest rate because the assumption is that you will be building the house on that land within 2-3 yrs. But if you fail to do that and dont submit the required documents (completion certificate) to the lender on time, your loan will be converted to a normal loan and the interest rates will be increased by 2-3% with a retrospective starting date as per the agreement between you and the lender.
This means that your loan outstanding amount will go up by some amount due to this change and you will have to now pay that additional amount. At the end of 3 yrs, the bank will ask you for the proofs of construction, and if you fail to submit them, you will have to pay an additional amount.
Here is an example of a Rs 20 lacs plot loan which is taken for 10 yrs @7% interest rate. The interest to be paid in this case will be 7.87 lacs apart from the 20 lacs principal amount.
Now if the interest rates are revised to 9% (2% increase) the interest, in this case, will increase to 10.4 lacs, which is 2.53 lacs more than the original amount.
Is there a single loan for plot and house cost?
There are two ways to get a loan for both the plot and house cost. One way is to get a separate plot loan and then a home loan after 2-3 years. The other way is to get a single loan that covers both the plot and house cost. The terms and conditions of the loan will vary depending on the bank and the type of loan you choose.
Wrong information given by bank representatives
It is important to be aware that some bank representatives may give you wrong or misleading information about plot loans. They may tell you that you don’t need to build a house on the plot, or that the interest rate will not increase after 2-3 years. This is not true, and you should always rely on what is written in the loan agreement.
Features of Plot Loans
Plot loans typically have the following features:
- The age requirement is between 18 and 70 years.
- A CIBIL score of 650 or above is required.
- Up to 60% to 70% of the property price is given as a loan.
- The loan tenure is typically 15 years.
Points to remember before taking a plot loan
- Make sure you are actually interested in building a house on the plot before you take out a loan.
- You can ask the bank to first disburse only the loan amount for the plot and then release more money at the time of house construction.
- Don’t try to play games with the bank, as it will likely waste your time and won’t benefit you if you don’t build the house.
Way Forward
Plot loans can be a good way to finance the purchase of a residential plot. However, it is important to be aware of the terms and conditions of the loan before you take it out. Make sure you are actually interested in building a house on the plot, and don’t try to play games with the bank.
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