What To Know When Choosing Lender For Loan For Property – HDFC Plot Loan vs home loan

Last Updated on August 2, 2023 by

We tend to frequently assume incorrectly that a plot loan and a housing loan are the same because both involve real estate. Home loans are available for buildings that have already been built, are being built now, or are anticipated to be built soon. You’ll need a land or HDFC Plot Loan if you want to buy land because you’ll probably need the money to either build a house on it or just invest in it, even though you might not be able to get a home loan.

Even though the application procedures, terms and conditions, and tenure of home loans and land loans are the same, the eligibility requirements, restrictions, tax implications, type of property, and other factors for the SBI Plot Loan and home loan are very different.

Details about the property and intended use

One can obtain a home loan from a bank or non-bank financial institution to pay for a home that has already been built, is currently being built, or has approval for construction to begin soon (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, though, when loans are secured by real estate or specific land parcels. 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 granted for HDFC Plot Loan.

Applicable interest rate and tenure

While a maximum loan term of 15 to 20 years is frequently used to buy a piece of land, a 30-year loan is more common when buying a house. 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.

Tax advantages available

On their tax returns, borrowers are not allowed to write off the interest they pay on their land loans as an expense. However, there are a few noteworthy exceptions to this generalisation. When the building is finished, not before, borrowers of HDFC Plot Loan are eligible for a tax exemption on the interest they repaid on the SBI Plot Loan. However, the lender retains the right to either completely withdraw the loan or increase the interest rate on the land loan if construction on the land or plot is not begun within the allotted time.

Mortgage-related expenses, including principal and interest payments, are tax deductible. You are still eligible for the bonus if this is your first mortgage loan or if you co-signed the loan with someone else. In this case, subject to the amount permitted, interest accrued during the construction phase of the project may be repaid five years after the project’s conclusion.

Processing fees for HDFC home loans and plot loans are different. Generally speaking, the processing fee for residential loans is lower than the processing fee for land loans.

As a result, picking the appropriate loan type necessitates a thorough comprehension of the function that your property performs. This is because home loans and plot loans are similar, but if you overlook the distinctions, your loan application might be rejected because your property doesn’t fit the requirements for the loan you’re applying for. However, only if the intended property and the justification for the purchase are sound will either home loans or land loans have any special advantages.

Note that plot loan is distinct from LAP

You should be careful not to confuse home loans and HDFC Plot Loan with loans secured by real estate now that you fully understand both (LAP).

Most real estate investors choose to invest for one of three reasons: to live there themselves, to use the property as a safe haven for their extra money, or to make money by reselling it for more. Living on the property is the third and least used defence.

Some of us are unaware, though, that having assets we can use as collateral for a loan against property can be very helpful to us in times of need (LAP).

What is LAP and how does it function?

Customers can choose to obtain an LAP, also referred to as a loan secured by real estate like a piece of land, from 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 plot of land, you can apply for SBI Plot Loan. The property type can typically be divided into three categories: residential, commercial, and industrial. The tenure generally lasts between 15 and 20 years across various lenders.

Also, you can only benefit from tax advantages on your SBI Plot Loan if a house is constructed on the property. Tax deductions are only possible once the construction is complete. According to Section 80C of the Income Tax Act, you are able to 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 loan for the plot into a regular mortgage. Furthermore, you ought to benefit from interest rate cuts and lower interest rates offered for pre-construction.

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