How Does Interest Rate Differ on Home Loan & Plot Loan – Explained!

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Not every individual necessarily wants to buy a house. Some prefer buying a plot and then constructing a property instead of buying a ready-to-move-in apartment. Now, whether it is to buy a ready house or go for a plot, you might need a loan for purchasing it. A home loan is meant to buy a house, whereas a plot loan is for buying a piece of land that can later be developed for residential purposes.

Now, many people think that both the loans are similar. However, a house loan and plot loan have key differences, even in terms of their interest rates and tax benefits. But why is there a difference in the interest rates? Read on to find out.

  • Difference in the interest rates of home loans and plot loans

The interest rates that lenders charge for plot loans are a few basis points higher as compared to the rates charged by lenders for home loans. This means that while you are researching both the loans’ rates, the lowest home loan interest rate is more likely to be lower than the lowest plot loan interest rate.

  • Difference in the tenures of home loans and plot loans

Not just the interest rate but even the repayment tenures differ between a housing loan and a plot loan. If you are going for a plot loan, the maximum tenure you get to repay the loan is 15 years. On the other hand, when you apply for a home loan, lenders can offer up to 20 years when it comes to repaying the loan.

  • Loan approvals depend on the location of the property

When it comes to a home loan, you can choose to buy a property that is located outside the municipal area too. However, this is not an option with a plot loan. If a plot is located in an industrial area or village does not usually qualify for a plot loan. Most lenders require the land to be located within municipal or corporation boundaries. With that being said, the land in question should also be having a clear demarcation. Since it has to be identifiable, it would require a wall that indicates clear boundaries.

  • Maximum amount that lenders approve for a home loan and plot loan

The LTV ratio (Loan to Value) of a home loan differs from that of a plot loan. When it comes to a housing loan, lenders can go up to covering 90% of the property value, whereas a plot loan covers much lesser than that. For a plot loan, lenders mostly go up to covering 70% to 75% of the property value. This means that if you are going for a plot loan, a down payment of about 30% is required for the plot purchase.

Therefore, apart from the plot and home loan rate, there is also a significant difference in both the loans with regards to the loan amount, repayment tenure, as well as geographical boundaries. Make sure to keep all these things in mind before deciding which loan to go for.