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Paying For Your Dream Home – Upfront Payment or Construction Linked Instalment Plan?

By Tata Capital
19 December 2025
11 mins read
3153

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 in which an upfront payment for loans is required at the time of booking the property. Typically, you 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 an upfront payment for loans, 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

A construction linked payment plan home loan is 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 upfront payment for loans, 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

A construction linked payment plan home loan is linked to the progress in the property’s construction. This means 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 payment plan home loan, 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.

Also,read: Home Loans for Under-construction Properties: Detailed Process

Safer alternatives to construction-linked payment plans

Here are some safer alternatives to construction-linked payment plans (CLP) that homebuyers can consider to reduce financial risk and ensure better control over repayments:

Time-linked payment plans

Under this option, payments are made at pre-defined time intervals rather than construction milestones. Among the popular alternatives to CLP, time-linked plans offer predictability and protect buyers from project delays.

Down payment + Bank-subvention plans

In this structure, the buyer pays a smaller upfront amount while the lender or developer covers EMIs during construction. These safer home loan payment plans reduce immediate financial pressure but require careful evaluation of developer credibility.

Ready-to-move property loans

Opting for completed or near-completion properties is one of the most secure home loan payment alternatives. Full disbursement happens at once, eliminating uncertainty linked to construction progress.

Flexi or step-up repayment options

Flexi and step-up EMIs allow borrowers to align repayments with income growth. As construction-linked plan options, these offer better cash-flow management without depending on builder timelines.

Choosing the right payment structure helps minimise risk, ensures smoother loan servicing, and offers peace of mind throughout the home-buying journey.

Also,read: Pre-EMI vs full-EMI: Which is the right choice for you?

Legal & regulatory factors for home loan payment plans in India

Home loan payment plans in India are governed by specific regulations issued by statutory authorities to protect borrowers from over-disbursement, delays, and misuse of funds. Understanding these regulatory aspects of home loans helps buyers choose compliant and safer structures.

Home loan payment plans in India must comply with the following regulatory requirements:

RERA restrictions on fund collection

Under RERA (Real Estate Regulatory Authority), developers can collect money from homebuyers only in proportion to construction progress. This directly regulates construction-linked plans and ensures compliance for payment plans by preventing upfront or bulk collections without matching on-site progress.

RBI norms on stage-wise disbursement

As per the Reserve Bank of India’s (RBI) guidelines, lenders and financial institutions must release home loan amounts in stages based on verified construction milestones. These legal factors home loans ensure lenders do not disburse funds ahead of actual progress, protecting borrowers from stalled projects.

National Housing Bank (NHB) guidelines for Housing Finance Companies (HFCs)

NHB mandates stage-wise disbursement for under-construction properties and discourages upfront releases without verified progress. These legal factors home loan regulate construction-linked and hybrid payment plans.

Loan-to-Value (LTV) ratio caps

As per RBI and NHB norms, lenders must follow prescribed LTV ratio limits based on property value. These caps restrict over-financing, shape down payment requirements, and influence home loan regulations India.

Interest charged only on disbursed amount

RBI regulations mandate that borrowers pay interest only on the amount disbursed, not on the sanctioned loan. This rule shapes home loan payment alternatives by aligning EMIs with actual fund usage.

Subvention plan compliance checks

Post regulatory tightening, lenders must independently assess builder subvention schemes. If a developer fails to service EMIs, liability shifts to the borrower, making regulatory due diligence critical for such payment plans.

Occupancy certificate (OC) linkage

For full disbursement, lenders require an Occupancy or Completion Certificate as per local laws. This legal requirement directly impacts final payment stages under different plans.

Also,read: Detailed Guide on How Home Loan Repayment Works

Self-assessment: Choosing the right payment plan for your finances

Selecting the best payment plan for a home loan starts with an honest review of your finances and future commitments. A thoughtful self-assessment loan plan approach helps reduce stress and improves long-term affordability.

Choose home loan payment plan based on these factors:

Assess income stability

Evaluate whether your income is fixed, variable, or expected to grow. Stable incomes suit structured EMIs, while flexible earnings may benefit from staggered or step-up options.

Review current and future obligations

Factor in existing loans, family responsibilities, and upcoming expenses. Strong financial planning for home loan ensures EMIs remain manageable even if costs rise.

Understand risk tolerance

If construction delays or variable EMIs make you uncomfortable, avoid high-risk structures. This step is crucial when you choose a home loan payment plan.

Plan for liquidity and savings

Maintain emergency funds for upfront payment for loans. Adequate liquidity helps manage pre-EMIs or unexpected expenses without disruption.

Match tenure with long-term goals

Align loan tenure with career plans, retirement goals, and lifestyle needs to select the best payment plan home loan option for you.

Loan against mutual funds as a personal loan alternative

A loan against mutual funds (LAMF) is an increasingly popular personal loan alternative, especially for individuals who want access to funds without redeeming their investments. By pledging mutual fund units as collateral, borrowers can meet short-term financial needs while allowing their investments to stay invested and potentially grow.

Unlike unsecured personal loans, a LAMF personal loan is typically linked to the value and type of mutual funds pledged, making it a cost-efficient borrowing option for eligible investors. As a mutual fund loan alternative, it works well for planned expenses or temporary cash-flow gaps.

Before choosing a personal loan alternative LAMF, it helps to understand how this option compares in terms of cost, flexibility, and impact on investments:

Lower interest costs

Compared to unsecured borrowing, a LAMF personal loan usually comes with lower interest rates since mutual fund units act as security.

No disruption to long-term investments

Opting for a loan against mutual funds allows investments to remain intact, helping investors stay aligned with long-term financial goals.

Flexible end-use

A mutual fund loan alternative can be used for various personal expenses such as medical needs, education, or short-term liquidity requirements.

Faster processing

With minimal documentation and digital pledging, LAMF options often offer quicker approvals than traditional personal loans.

For investors seeking liquidity without breaking investments, a personal loan alternative LAMF can be a cost-effective and efficient financing option.

Also,read: Home Loan Tax Benefits for Under Construction Property

How to assess your risk tolerance for home loan payments

Understanding your loan payment risk tolerance is a key step in choosing a sustainable repayment structure. A clear home loan risk evaluation helps ensure your EMIs remain manageable even during income changes or unexpected expenses.

Before committing to a repayment structure, it is important to evaluate how much financial uncertainty you can comfortably handle:

Assess EMI affordability under stress

Calculate whether you can continue EMIs if income reduces temporarily. This form of risk assessment for home loans highlights how resilient your finances are.

Evaluate income stability

Fixed salaries offer predictability, while variable or seasonal income increases repayment risk. Matching EMIs to income type helps assess EMI affordability realistically.

Factor in future commitments

Upcoming expenses such as education, healthcare, or family obligations can affect repayment capacity. Including these in your home loan risk evaluation reduces over-commitment.

Review savings and emergency buffers

Adequate savings act as a safety net during disruptions. Strong buffers improve your overall loan payment risk tolerance.

Understand exposure to interest rate changes

Floating-rate loans can increase EMIs over time. Assess whether your budget can absorb such fluctuations as part of a complete risk assessment home loan exercise.

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 an easy 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.

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FAQs

Is a construction linked payment plan better than upfront payment for home loans?

A construction linked payment plan home loan reduces interest outgo as EMIs apply only on disbursed amounts. Compared to upfront payment for loans, it lowers early financial strain but depends on timely construction progress.

What are the tax implications of using a construction linked payment plan?

Tax benefits on interest and principal under a construction linked payment plan can be claimed only after possession. During construction, pre-EMI interest may be accumulated and claimed later as per tax rules.

How does a construction linked plan affect my home loan eligibility?

Eligibility for a construction linked payment plan home loan is assessed like any other loan, based on income and credit profile. However, lenders also evaluate project approvals and construction status before sanction.

What happens if construction is delayed in a linked payment plan?

If construction is delayed under a construction linked payment plan, disbursements pause, but pre-EMI interest may continue on released amounts, potentially increasing overall cost compared to upfront payment for loans.

Can I switch from upfront payment to construction linked plan later?

Switching from upfront payment for loans to a construction linked payment plan is usually not permitted, as the disbursement structure is fixed at sanction and tied to the property’s construction stage.

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