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.