Home Loans » Articles » Loan for Land Purchase

Loan for Land Purchase

Land purchase loan is a loan given to buy land. In other words it is a property loan or a land loan. These loans to buy land hold great sway in India among all sectors of individuals. These land loans in India can be given to either individuals or organizations for the purchase of residential and commercial land. This is a personal loan given on the basis of security or equity provided.

Loan Program:

The loan to purchase land in India is generally offered at two levels. It is given at the state level and then the economic status of the applicant. This means that the land purchase loan scheme varies from one state to the other. Similarly, permanently employed residents, self employed professionals are less likely to undergo a vigorous application screening process. In contrast, self employed businesses of sole proprietorships and partnerships, consumer businesses incur heavy rates of interest and vigorous verification.

The property loan is generally given for a period of 15 years. The loan amount varies - it is usually set at 85% of cost of the land but, is subject to the repayment capacity of the customer. The security or equity demanded for such a loan is a first mortgage of the property to be financed, normally by way of deposit of title deeds and such other collateral security as may be necessary. Interim security may be required, if the property is under construction. Generally, the loan security is state dependent and changes in accordance with the value of the land in that particular state.

This is a personal loan and so the interest rates ought to be low. But this loan offers two rates of interest to individuals and organizations respectively - the adjustable rate of interest and the fixed rate of interest. Financial institutions are sympathetic to individuals who borrow to buy land for residential purposes and allow then low variable or adjustable rates of interest. But this view changes for businesses. Banks hold that the business is a team effort and is not bogged down by household expenditure. It can afford a high fixed rate of interest.

Loan under Adjustable Rate is revised every three months from the date of first disbursement. But this revision has no positive or negative effect on your EMI. An increased interest rate will simply reduce your loan term. This happens as your amount of interest on your EMI increases and you end up finishing off the loan faster. This happens when the rate of interest is fixed.

Adjustable Rate Home Loan (ARHL) -
If a prepayment is made within 3 years of the first disbursement, under Adjustable Rate Home Loan early redemption charges of 2% of the amount being prepaid is payable if the amount being repaid is more than 25% of the opening balance.

Fixed Rate Home Loan (FRHL) --
Redemption charges of 2% of the amount being prepaid is payable if the amount being repaid is more than 25% of the opening balance