One of the biggest investments a person can make in their life is buying or building a home. Owning a home is a fulfillment of a dream for many people. However, the price of purchasing or building a home can be high and may not be affordable for everyone to pay out of pocket. Here’s where a housing loan and loan for house construction come into play. We’ll go over how the two types of loans differ and all you need to know about them in this blog.
What is a housing loan?
A loan type known as a housing loan is created expressly to finance the purchase of a home or other property. Numerous financial institutions, including banks, home finance businesses, and other non-banking financial firms, offer mortgage loans. Typically, a lump sum loan payment is made, with the remaining balance due during the loan’s term in monthly payments.
Housing Loan Features:
- The repayment period for housing loans might be anywhere between five and thirty years.
- Compared to other types of borrowing, mortgage interest rates are often cheaper.
- The loan amount may be used for several things, including the purchase of a new home, its construction, renovation, or even the purchase of the property.
- Borrowers who take out housing loans are given tax advantages. Under Section 80C of the Income Tax Act, principal repayments up to Rs. 1.5 lakhs are tax deductible, and interest payments up to Rs. 2 lakhs are tax-deductible by Section 24(b) of the Income Tax Act.
What is a Loan for House Construction?
As the name implies, a loan for house construction is a particular kind of loan made for building a house on a plot of land. People who already own land and want to build a house on it can apply for this loan, which is typically provided by banks and other financial institutions.
Features of a Loan for Building a House:
- Depending on how the construction is going, the financing for building a house is disbursed in stages.
- Due to the additional risk involved in building a house, construction loans often have higher interest rates than housing loans.
- Only a new house can be built on a plot of land using the loan money.
- The tax advantages of a construction loan are comparable to those of a mortgage.
Difference between Housing Loan and Loan for House Construction
The purpose of the loan is the main distinction between loans for housing and loans to construct a house. A loan for housing is used to purchase an existing home or property, whereas a loan for home construction is used to build a new home on the property.
The procedure for disbursing loans also differs. When it comes to housing loans, the loan amount is disbursed all at once, whereas when it comes to a loan for house construction, the loan amount is disbursed in stages depending on how quickly the construction is going.
Due to the higher risk involved in construction, the rates of interest for loans for home construction are typically higher than those for housing loans. However, depending on the financial institution and the loan’s terms and conditions, the interest rates for both kinds of loans may change.
Additionally, the tax advantages provided for both varieties of loans are comparable. Under Section 80C of the Income Tax Act, principal repayments up to Rs. 1.5 lakhs are tax deductible, and interest payments up to Rs. 2 lakhs are tax deductible under Section 24(b) of the Income Tax Act.
To sum up, the loan’s aim and the disbursement procedure are what distinguish a housing loan from a loan for house construction.. Loans for house construction are the best option for building a new home on a plot of land, whereas housing loans are suitable for buying an existing home or property. Before selecting the loan that best meets your demands, it is crucial to assess your financial situation, requirements, and payback capacity.
Which loan would be best for you?
The decision between housing loans and loans for building a house depends on the needs of the individual. A housing loan might be appropriate for you if you intended to buy an existing home or piece of property. On the other hand, a loan for house construction would be the best option if you already own a plot of land and intend to build a new home on it.
In conclusion, a housing loan and a loan for house construction a house are great possibilities for people who wish to buy a house or build a new one. Loans for house construction are the best option for building a new home on a plot of land, whereas housing loans are suitable for buying an existing home or property. Before selecting the loan that best meets your demands, it is essential to assess your financial situation, requirements, and payback capacity. We hope this blog has given you the knowledge you need to distinguish between the two loan types and make a wise choice.