To construct a house of your own, you need to buy a plot or a piece of land. Looking at the increasing prices of real estate, purchasing a plot is not that easy. You need to save and invest in a plot cautiously.
To buy a plot of land, it is always advisable to apply for a plot loan. Paying EMIs is one of the critical aspects of taking a plot home loan.
Factors to Consider to Plan your EMIs while Applying for a Plot Home Loan
Let us have a look at some of the factors that should be considered to plan your EMI before taking a plot home loan:
- Repayment Capacity – As our elders say, we should not borrow more than what we can repay. Your monthly EMI for a home loan should not exceed 40% of your total annual income. Lesser the EMI amount, better will be your repayment capacity.
- Short Loan Tenor – Banks offer a maximum home loan tenor of 20-25 years. Longer the tenor, lower will be your EMI payment. However, you can also opt for a short loan duration because the interest payments are higher in the long run. You can compare the costs involved with both the tenors in a plot loan emi calculator and plan your EMI accordingly.
- No Investment – You should never take a home loan only for the sake of making an investment in a lot or a piece of land. There was a time when real estate investment used to come cheaper than other investments. But now the story has changed. A piece of land is no longer cheaper. Hence, you should take a home loan only if you are planning to buy or construct your own house
- Timely Repayment – You should always make timely and regular repayments of your plot home loan. Any delay in EMI payment can impact your credit score and create hurdles in taking other loans in future. Choose an EMI amount that suits your convenience of payment.
- Take Insurance – Buying an insurance cover along with a plot home loan can prove to be a boon to your financial security in future. Your EMIs will not become a burden on your pocket if you take an insurance cover for your family’s safety.
- Switch Loan Plan – You can switch your plot home loan plan when the RBI brings a change in the interest rates. You can switch to a cheaper loan policy for which the interest rates are low. But make sure that the difference is at least 2 percentage points, otherwise, the prepayment penalty on the old loan policy and the processing charges on the new loan policy will be higher the effective net profit of switching.
- Tax Benefit – You can avail the home loan tax benefits on your house property. If your house is self-occupied, you can claim the interest paid up to Rs.2 lakhs on the home loan as a tax deduction. This will help you in saving money and easily paying off your EMIs. If you give your house on rent, you can claim the total interest paid as the tax deduction.
- Read the Policy Document – You should always read the plot home loan policy documents carefully. Any negligence and ignorance in understanding the terms and conditions of the policy can cost you heavily on your EMIs. If you are unable to understand any of the terms and conditions laid down in the policy document, you can hire a financial advisor to analyze the agreement before you apply for the plot home loan.
The Bottom Line
You should always be alert with regards to the above-mentioned points while applying for a plot home loan. This will help you to plan you to plan and pay off your EMIs comprehensively.