Are Home Loans Different From Plot Loans?

This is a question which is boggling new home loan customers. Currently, all house related activities come under the umbrella of Home Loans. But they differ on technicality basis. Home loans are procured for buying an existing house or for constructing a new house in the future or for house under construction or renovation purposes. Whereas, land loans or plot loans, as the name suggests, are desired for the purpose of buying a land for building a house or for investment purposes. Before we explore the differences, let us first have a look at their similarities.

Similarities between Home Loans & Plot Loans:

1. Interest Rates: More or less, the interest rates demanded by all the banks on House Loans & Plot loans are the same. This because the plot loan in most cases fall under the category of home loans.

2. Application Procedure: The application process to avail both these loans are similar nature. Even the eligibility criteria and the due diligence process is very similar.

3. EMIs: The monthly installment that you have to pay on the loan amount is same in both cases.

Differences between Home Loans & Plot Loans:

1. Purpose: The basic difference is based on what purpose the individual wants to take the loan for. House loans are taken for the purpose of constructing a new house, purchasing a new residential house, carrying on the unde-construction of a new house or for renovation purposes. While, plot loans are taken to buy a new land only for residential purposes.

2. Loan To Value Ratio (LTV): LTV/LTC (Loan to Cost) Ratio is the loan amount that the bank decides to give you based on the value or cost of your property. Say, if the value of your property is INR 30 lakh, the bank will give you 80-90% of the property value as loan amount. In the case of home loans, the LTV ratio is higher as opposed to plot loans.The LTV ratio of loans for houses are around 75-90%, whereas it is 75-80% in the case of plot loans. This implies that you will have to pay more down payment in the case of plot loans.

3. Tenure Difference: There is a massive difference between home loans and land loan in terms of tenure. The maximum tenure that can be provided in the case of house loans is upto 30 years. On the other hand, plot loans can be taken only for a tenure of upto 15 years.

4. Tax Benefits: The Indian Government know that buying a house or constructing your own house can be heavy on the pockets. That’s why it gives tax benefits to individuals who invest in a house. Home loan is eligible for tax deduction under section 80C. When you buy a house using house loan, there’s a significant amount of tax you save. In case of loans for house construction, you get tax deduction on principal repayment as well as interest payment. Unfortunately, this is not the case with plot loans. Plot loans do not help you avail tax benefits. However, if you construct a home on that piece of land, then, you’ll be eligible to have tax benefits.