Home Loan vs Land Loan: When it comes to buying a property, colloquially it means buying a new house or buying a piece of land. But these two are different things in the terminology of banks. Most of the people arrange money to buy a new house or land through loans from banks, but taking a home loan is quite different from taking a loan for land. From interest rates to some conditions are also different for both.
Apart from this, there is also a huge difference in the tax benefits for both the loans. In such a situation, it is very important to know about the difference between the two types of loans before taking a loan. Before knowing some differences between the two types of loans, it is also important to know the similarities. The disbursement process for both the loan types is almost the same and the EMI options are also the same.
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Different purpose of loan
Home loan is given for a ready-made house or for a house which is under construction or soon to be constructed or for self-construction. On the contrary, land loan is given for purchase of plot which can be used only for construction of residential property. Land loan can be used for personal use or as an investment.
Low downpayment requirement for home loan
The portion of the value of a property that can be paid through a loan is called the Loan to Value Ratio (LTV Ratio). The LTV ratio for a home loan is 75-90 per cent i.e. up to 90 per cent of the property value can be covered in the home loan and the remaining amount i.e. 10 per cent will have to be paid as downpayment. On the contrary, in the case of land loan, this ratio is 75-80 percent, that is, if you are taking a land loan, then at least 20 percent of the cost of the land will have to be paid as down payment.
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Home Loan Rates Minimum
During the festive season, banks give many offers to the people and at this time home loan is at a historical low. Home loan can also be availed for buying a house at a rate of just 6.4 per cent. Most of the banks are providing home loans at less than 7 per cent rate. In contrast, the interest rates of land loans are high.
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Do not get much time to repay the land loan
After getting the loan, it gets some time to repay it in installments. You get up to 30 years to repay the home loan. However, in the case of a land loan, such a long time is not available to repay the installment. Under the land loan, the entire loan has to be repaid in 15-20 years.
Tax benefits available on home loan
Under the Income Tax Act, taxpayers get tax benefits under sections 80C and 24B of the Income Tax Act on the payment of home loan. Apart from the interest paid for the home loan, there is also tax relief on the principal amount. There is no such relief in land loan. However, when taking a loan for the construction done on the land, then tax deduction is available on it and this benefit is available on completion of the construction.
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