CHEQUE BOOK

HT Estates - - HTESTATES - Harsh Roongta

If I buy a plot, is it es­sen­tial to con­struct a house within a cer­tain time­frame? Within how many months do I start the con­struc­tion work?

– Sha­hana Singh If you have taken a com­pos­ite loan, ie a home loan to cover the cost of plot and con­struc­tion of a dwelling unit on it, the banks might have im­posed a con­di­tion re­quir­ing you to start the con­struc­tion of the house within a spec­i­fied pe­riod while sanc­tion­ing the loan and may have also asked for some un­der­tak­ing.

Gen­er­ally, if you do not start con­struc­tion of the prop­erty within a rea­son­able time, de­spite giv­ing such an un­der­tak­ing, the agree­ment will have a clause un­der which the len­der will treat you as a de­faulter and you may be re­quired to re­pay the loan in full im­me­di­ately. The bank may also charge you a higher in­ter­est rate from the day you took a loan. Please do not give an un­der­tak­ing that you do not have any in­ten­tion of hon­our­ing as the bank may then ask you to give back the en­tire loan amount and that may spoil your credit history and your credit score with CIBIL.

If you are only in­ter­ested in pur­chas­ing a plot, you can take a loan to pur­chase a residential NA plot from ap­proved de­vel­op­ers or statu­tory author­i­ties.

But tak­ing a com­pos­ite loan brings more ben­e­fits in terms of fi­nanc­ing as well as tax ben­e­fits. The loan fi­nanc­ing in case of a com­pos­ite loan goes up to 80% to 90% of the prop­erty value as com­pared to the plot loan’s 60% to 65%.

You can also get tax ben­e­fits un­der Sec­tion 80C for the prin­ci­ple re­pay­ment and sec­tion 24 for the in­ter­est paid on the com­pos­ite hous­ing loan, in­clud­ing the cost of the plot but only af­ter con­struc­tion is over. No de­duc­tions are avail­able on a loan taken for a plot un­til con­struc­tion is com­plete. When should a bor­rower go for re­fi­nance or con­ver­sion of a loan with the same bank to avail of a lower in­ter­est rate? What are the fac­tors to be con­sid­ered be­fore tak­ing a fi­nal call on re­fi­nance or con­ver­sion?

– Ra­jiv Singhal The cur­rent rate in the mar­ket for a loan be­low ₹ 75 lakh is around 9.75%. Hence, as­sum­ing that the bor­rower’s loan amount is be­low ₹ 75 lakh, he can check if the ex­ist­ing len­der is will­ing to re­duce the in­ter­est rate to 9.75%, even if, it means pay­ing a small con­ver­sion fee of upto 0.57% of the out­stand­ing loan amount.

This will help the bor­rower do away with the lo­gis­tics of trans­fer of doc­u­ments from one len­der to another. If the len­der is not will­ing to re­duce the rate of in­ter­est to 9.75% per an­num, the bor­rower can eval­u­ate the op­tion of switch­ing his loan to other len­der.

Since the RBI has al­ready in­structed banks not to charge fore­clo­sure fees in re­spect to a float­ing loan, he will not have to pay any penalty for shift­ing such loans. How­ever, he may have to pay some pro­cess­ing fee to the prospec­tive len­der. In fact, most lenders may agree to take over the bor­rower’s loan from an ex­ist­ing bank with­out any sig­nif­i­cant pro­cess­ing fees. So, ef­fec­tively there will be no charge for shift­ing the loan to another len­der.

All that the bor­rower will re­quire is a good track record of pay­ment of his EMIs to get an of­fer from another bank to take over his ex­ist­ing loan.

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