Plot Loans: Boon or a Bane

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 don’t 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 years, 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.

Is there a single loan for plot and house cost?

Some banks as told to me by a representative first issue a plot loan and then after 2-3 years issue another home loan to construct the house, whereas some banks may issue a single loan itself for both purposes and it will be mentioned in the agreement. Note that you can avail of too many benefits as these loans are issued as home loans (the part of the loan which will be used for house construction).

Many a times you may get wrong and misleading information from the bank representative. They may tell you that Nothing will happen after 3 years, don’t worry or These are all just formalities mainly because he is interested in getting the loan approved due to their targets. This is wrong and makes sure you don’t believe them. Always rely on what is written in the agreement.

Note that the loans are given at a cheaper rate for plots because there is a bigger agenda of RBI and govt that everyone shall access to housing. If you are buying the residential plot simply because you can sell it off in the future for profits then you can’t get the benefit of the lower interest rates. For you, the interest rates will be revised because you will have to construct a house on the plot after 2-3 years as per rules.

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