Buying a house is not only a significant life decision but also a major financial investment. Your home loan EMIs can take away a significant portion of your monthly income for the tenure of the loan. Therefore, you need a solid repayment plan that lets you realise your homeownership dream without straining your monthly budget.
Builders today offer multiple payment options that allow you to take a loan and book your desired property, even before the construction begins. The two most popular payment plans offered by builders are - upfront or down payment and construction-linked instalment plan.
If you're a first-time buyer, understanding which payment plan will be ideal for you and calculating the home loan payment for them can be difficult. Let's break down both these options and look at their pros and cons.
Upfront payment
This is a traditional down payment plan under which you have to pay 10%-15% of the total purchase amount at the time of booking the property. You have to pay another 80%-90% within a specified period that usually ranges between 45 and 60 days.
You have to pay the balance amount and other charges like the stamp duty and registration fee, property tax, maintenance, etc., when you receive possession of the property. Under this plan, your EMIs will start from the time you book the property.
Pros of upfront payment
Builders usually offer good discounts on the total value of the property as you're making the payment immediately. With a down payment plan, you can enjoy a discount of about 8%-10%, which you will not get in any other plan. This helps you save more on the total property value.
Cons of upfront payment
There have been several instances where the builder has delayed the construction and delivery of the property. It can also happen that the property delivered to you is different from what the builder suggested in the sample, or the property price increases by the time you get its possession. Moreover, there is also a risk of construction being stuck or abandoned because of legal issues. In such situations, recovering your money from the builder can be a tedious task.
Construction-linked instalment plan
It's a home loan payment plan under which you have to pay 10%-15% of the total property value at the time of booking. In the construction-linked instalment plan, the first few instalments, usually 2-3, are calendar-based, and the remaining amount is linked to the construction progress.
Unlike down payment plans, you don't receive any discounts under construction-linked plans. These plans are ideal if you don't want to make any major financial commitments at once.
Pros of construction-linked instalment plan
As the plan is linked to the progress in the property's construction, you pay the builder in instalments as he completes different slabs of the projects. This way, you minimise the risk of losing money, as you don't have to pay the entire amount upfront. Additionally, your EMIs will start after you receive the delivery of the property.
Cons of construction-linked instalment plan
Although your EMIs begin after you possess the property, you have to continue paying the rent of your current home as well as pay the pre-EMI. A pre-EMI is the interest on the home loan. Therefore, in a construction-linked instalment plan, you end up spending more on your home loan payment than the actual value of the property.
Sometimes builders draw 90%-95% of the value from the lender and delay the delivery of the property by 2-3 years. In such cases, you not only have to wait longer for the delivery but also bear the interest burden.
Upfront payment vs. construction-linked instalment plan
Although you can enjoy good discounts on upfront or down payment plans, they are riskier, as you might not get possession of the property if there are legal or construction issues. If this happens, recovering your money can be a hassle.
On the other hand, a construction-linked plan is the least risky home loan payment plan because it is based on construction advancement. Additionally, the builder will also try to complete the construction quickly to get money flowing in.
In conclusion
Before making any major financial decisions and booking the property, you must carefully evaluate your requirements and the different options you have. If you're booking an under-construction property, make sure you research well about the builder and his previous projects. Calculating home loan payments will vary from scheme to scheme. So, ensure that you choose one that best fits your requirements.
Buying a house is an exciting experience, and you deserve to enjoy every bit of it. This is why Tata Capital home loan is ideal for you. You get to enjoy flexible repayment plans and multiple options to suit your needs, along with affordable interest rates and a quick application process. Additionally, our home loan EMI calculator makes calculating home loan payments quick and effortless. Visit our website to learn more.
28 June 2022
5 mins read
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