Are you planning to buy a plot of land or a house? You can take a loan in both cases.
Both of them will be mortgage loans. The terms of a land loan and home loan are similar. However, there are some crucial differences between the two.
Let us take a look at them.
Property Location And Type
You can take home loans for readymade houses or those under construction. They are available even for houses to be constructed.
However, a loan against the plot can be availed only when you buy land for residential purposes. Moreover, it should be in the municipal area. You cannot get a land loan if:
- Your plot is located in a village
- It is located in an industrial area
- It is an agricultural land
- It is used for commercial purposes
Loan To Value ( LTV)
Loan to value denotes the percentage of the property price that you can get as a loan.
In the case of home loans, the LTV ranges from 75% to 90%. It means you have to make a minimum down payment.
However, land loans have a maximum LTV of 75% to 80%. So, you have to bear at least 25% of the price from your pocket.
Home loans have a maximum tenure of 30 years. It means your EMI amount will be quite less. While land loans have a maximum tenure of only 15 years. So, the EMI will be higher than home loans of the same amount.
One of the reasons for the popularity of home loans is the tax benefits you can avail.
Home loans offer tax deductions both on the principal amount and the interest payments. It allows you to make great savings.
However, there are no tax benefits on land loans. You can avail of tax deductions only if you take a loan for house construction on the plot.
Foreclosure Or Prepayment Charges
If you opt for a fixed interest rate on your home loan, your lender will take a prepayment charge.
However, floating interest rates will not call for any extra charges if you repay your loan earlier. So, if your income increases, it is better to repay your home loan earlier.
However, a land loan has a prepayment charge. It ranges from 2 to 5 percent. Thus, it is not a wise idea to pay off your land loan earlier.
Are you thinking about the interest rates?
Well, the lap loan interest rate is the same for all loans. So, your home loan and plot loan will have the same rates of interest.
The Bottom Line
Both a home loan and a land loan can help you to buy property. However, considering the features of both, it is better to go with the former.
PNB Housing offers home loans at competitive rates. Their application process is also super easy.
Visit their website today and take the first step towards buying your property.