Land Mortgage vs. Home Mortgage: What They Are And Which Is Best For You?
Everyone dreams of buyingtheir own home, and availing a home loan is one of the easiest ways to realize this dream.
However, before rushing to the nearest bank to apply for a home loan, you need to decide if you are buying a home that is constructed or under construction or if you want to purchase a plot of land and build your home on the land.
If you are buying a built house, you can get a home loan, and if you are getting a plot of land, you can opt for a land mortgage. Both the loans have their own requirements and specifications, which we’ve broken down for you.
Home Mortgage vs. Land Mortgage
Simply put, a home mortgage is for properties under construction, ready for possession, or expected to be constructed soon. A land mortgage loan, on the other hand, is for buying a plot of land or building a house on a plot for investment.
Following are the other major differences between the two loan schemes.
Purpose
The fundamental difference between a home and land mortgage is the purpose for which you avail of the loan.
As we noted earlier, a home loan can be used to buy a ready or under construction property, whereas a land loan is primarily used to buy a plot of land for investment or to build a home.
Loan-To-Value Ratio
In a home loan, you can avail of the loan for up to 85% of the value of the property, while the rest is paid out of pocket. In a land mortgage, the loan can only be availed for 70% of the value of the plot.
Mortgage Loan Interest
The interest on a home mortgage is usually around 8%, whereas the mortgage loan interest for a land loan is 1 to 3% higher than the home loan interest offered by the lender.
Processing Fee
The processing fee for a home loan is approximately 1 % of the loan value, while it’s 1.5% for a land loan.
Tenure
You can avail of home loans for a tenure of up to 30 years. Land loans are usually granted for a shorter duration, like 15 years.
Tax Benefits
Home loans let you avail a tax deduction on the principal and interest payments. A land loan is not eligible for tax benefits, but if you build a house on the plot of land, you can avail a deduction for the loan amount taken against construction.
However, you can claim the tax deduction only after the construction is complete.
Risk Factor
Land loans carry a higher risk compared to home loans for the lender. It is a risk because there is no solid structure or home on the plot.
Most often, people may already have existing rents or mortgages, and in case of a financial emergency, a default on a land loan is more likely. Home loans are availed for existing homes where people are living or intend to live, so people are not as likely to default on a home loan repayment.
Which One Is Best For You?
Home and land mortgage schemes have the same eligibility, documentation, and processing requirements. Additionally, the EMI options and co-borrower rules are the same for both loans.
If you are confused between the two schemes, you need to make sure that you are clear about the purpose of your loan. If you are buying a constructed or already contracted construction home or want to renovate your existing home, a home loan is the best option for you.
If you are considering purchasing land for investment and may or may not build a home on the land, you can get a land mortgage.
To Conclude
Buying a new home or a plot of land may look like the same thing to most people since both types of loans require a mortgage that needs to be placed on the property, but knowing which loan to avail of makes the whole process hassle-free.
A home loan application takes time and careful processing before you can get the loan disbursed, so if you are clear about the purpose of your loan, it makes the whole process smoother and easier for you.
