home loan

HDFC Plot Loan vs home loan- How to choose the right type of loan for property

We frequently tend to assume incorrectly that a plot loan and a housing loan are the same because both loans involve property, right?. However, in reality, the truth is different. Home loans are generally only provided for buildings that have already been built, are currently being built, or are anticipated to be built soon. However, if you want to purchase a plot of land, you’ll need a land or HDFC Plot Loan as you’ll probably need the money to either build a house there or simply purchase it as an investment with the intention of selling it later.

Even though the application process, terms, and tenure are similar, there are significant differences between home loans and SBI Plot Loan in terms of eligibility requirements, restrictions, tax implications, and other factors.

Be clear about the features and intended use of the subject property

A house that has already been built, is currently being built, or has received approval for construction to begin soon may be purchased with a home loan from a bank or non-bank financial institution (NBFC). The property’s features and intended use are taken into consideration. No matter the size or location, a home loan is available for any property that meets the requirements.

The situation is very different when loans are secured by real estate. The property or portion of land must be residential, non-agricultural, and non-commercial, as well as located inside the boundaries of the municipality or corporation, not in an industrial district, and not in a hamlet, for these types of permits to be issued for HDFC Plot Loan.

When deciding between different loan options for real estate, such as plot loans versus home loans, it’s important to consider not just the terms and rates but also the lender. For those in Idaho Falls, choosing a credit union Idaho Falls can provide the advantage of local expertise and a more tailored banking experience. Credit unions typically offer competitive rates and a more personal relationship, helping you make the best financial decisions based on your specific needs.

Compare the interest rate and tenure

While a 30-year loan is more common when purchasing a home, buying land frequently requires a loan with a maximum term of 15 to 20 years. The exception are the few NBFCs that do provide up to 20-year loans on land. Due to their perceived lower risk, mortgage loans have slightly lower interest rates than land loans.

Assess the tax advantages of both

On their tax returns, borrowers cannot deduct the interest they pay on their land loans as an expense. However, there are a few noteworthy exceptions to this generalisation. Once the building is finished, not before, the holders of plot loans are entitled to a tax exemption on the interest they paid on the loan. However, the lender retains the right to either completely withdraw the loan or increase the interest rate on the SBI Plot Loan if construction on the land or plot is not begun within the allotted time.

Tax deductions are available for principal and interest payments made in connection with a mortgage. You are still eligible for the bonus even if you co-signed the loan with another person or if this is your first mortgage loan. In this case, interest accrued during the construction phase of the Project may be repaid up to the Permitted Amount five years after the Project’s completion.

Check the processing fees

The processing fees for mortgages and land loans vary. Generally speaking, the processing fee for residential loans is lower than the processing fee for SBI Plot Loan.

As a result, picking the appropriate loan type necessitates a thorough comprehension of the purpose that your property serves. This is so because mortgages and loans for land have a lot in common. If you aren’t aware of this, though, your loan application might be turned down if your property doesn’t fit the requirements for the loan you’re applying for. However, unless the intended property and the purchase’s justification are sound, neither home loans nor HDFC Plot Loan will have any special advantages.

Do not confuse them with LAP

You should be careful to distinguish between home loans, SBI Plot Loan, and loans secured by property once you have a firm understanding of both (LAP).

A propertyinvestor’s three main concerns are whether they plan to occupy the property themselves, use it as a safe haven for their extra cash, or sell it for a profit. The third option on the list and least used is residing on the property. The advantages of having assets we can use as collateral for a loan against property, however, may be underestimated by some of us.

What precisely is LAP and how does it function at its core?

LAPs, also known as loans secured by real estate like a piece of land, are available to customers at the majority of financial institutions. In order to obtain money for financial requirements like starting a business or travelling abroad, as well as for personal wants like funding for college costs, medical expenses, or wedding costs, one could take out this type of loan by mortgaging their current immovable property. A loan can be secured by real estate that can be used for both domestic and commercial purposes. If the property is a land plot, you may apply for a SBI Plot Loan. The three different types of properties typically fall into one of the three categories: commercial, industrial, or residential. The average tenure of all lenders is between 15 and 20 years.

What about tax benefits?

You can only benefit from tax advantages on your plot loan if a house is constructed on the property. Tax deductions are only possible once the construction is complete. In accordance with Section 80C of the Income Tax Act, you may deduct the principal portion of the repayment up to an annual maximum of Rs. 1.50 lakh.

Section 24 of the loan’s terms allows you to benefit from tax advantages on the loan’s interest component after the house is finished being built and you move in. A 2 lakh rupee annual deduction is available to you under Section 24 of the Income Tax Act of India. To get that, though, you must convert the HDFC Plot Loan into a regular mortgage.

You should also benefit from the interest rate reductions and lower interest rates offered for pre-construction.