Buying a home: How to choose between various payment options

Most builders provide one of the four options—Down-Payment Plan, Construction-Linked Plan, Flexi-Payment Plan and Time-Linked Payment Plan. Calculate the benefits that the builder gives you and weigh them against the costs/penalties that would be levied if you do not make timely payments

Buying a home is perhaps the biggest decision you take in your life. The amount involved is huge, EMIs (equated monthly instalments) take away a large chunk of your monthly salary and go on for a long time, if you take a loan. Thus, the repayment should be a well-thought out, structured plan. Since payment may be a cause of worry for many buyers and may turn them away from buying homes, builders, these days have come up with options that would encourage buyers to take loans and book properties, even before construction starts, let alone possession. When buying home, keep these payment options also in mind, other than factors such as distance from the office, amenities offered, surrounding infrastructure, built-up area, etc. While applying for a home loan, calculate the benefits that your builder gives you and weigh them against the costs/penalties that would be levied if you do not make timely payments.

Is a pre-approved home loan a good option?

When buying a home seems unaffordable because of shooting property prices combined with high interest rates, these options come in handy for you. Thus, most builders provide one of the four options—Down-Payment Plan (DPP), Construction-Linked Plan (CLP), Flexi-Payment Plan (FLP) and Time-Linked Payment Plan (TLPP). Under these options, flats are booked even before construction starts. It is a win-win situation for both the builders and the buyers, since buyers lock-in their prices much before they actually buy it, and builders get funds for construction.

Traditional down payment plans require you pay 10%-15% of the purchase price when you book your property, another 80%-90% within a given time-frame, say 45-60 days and the rest, at the time of possession. This remaining amount will include the balance amount of the cost of property and all charges levied by different authorities including Stamp Duty and Registration Fee, around 5% of the value of the property; the initial property tax, society maintenance charges; other charges of using society facilities such as gymnasium, swimming pool, parking, etc.

Risks involved in such cases include delay in construction and delivery of property that has happened in most cases, actual delivered property differing from what was shown in the sample, different constructed area, and increase in property prices by the time property is delivered to you. All these problems discourage buyers from buying property,

To avoid these problems, builders have come to with EMI sharing options. EMI sharing is advertised saying “no EMI till possession” but it actually works differently for loan borrowers. Under the “full sharing of EMI” option, the builder pays the interest component of your each EMI while under the “partial EMI sharing” option, the builder will pay a proportion of your EMI interest component. EMI sharing option is applicable for a certain period of time with the complete EMI to be paid by you thereafter. Some builders introduce an additional clause of paying at a fixed rate of interest, which could be challenging for floating rate borrowers.

Real Estate Malpractices: Home-buyer at the mercy

Construction-linked plans require you paying a booking amount—around 10%-12% of the purchase price upfront while the rest is linked to construction milestones, 20% with each floor constructed, for example.

Flexi payment option, on the other hand, is a combination of both the above options, where the buyer has to pay about one-third of the price while booking and another one-third linked to milestones, while the remaining amount would be paid at the time of possession.

In comparison to one another, the construction-linked payment plan is more suitable than the other two since the risk is the least, if the payment is not timed and completely linked to construction completed. Moreover, the builder would also want to complete construction fast in a bid to get cash flowing in. That said, the track record of the builder is an important parameter to be taken into consideration.

From the loan perspective, construction linked loans are more expensive of the two, since they have a longer tenure; only interest payment is due till the property in under construction, principal repayment starts after possession.

Time linked-repayment plans

Repayment of these loans has to be made at a pre-decided point in time and in pre-decided proportion and are therefore riskier in terms of combating delay of construction. In case you pay 10% of the total amount at the time of booking and the rest at regular intervals of say, one year each, in three equal instalments, your payments are not in tandem with the construction of the property. And according to the agreement, in case you fail to pay on time you are saddled with huge penalties that you accepted to pay it the time of signing the agreement. Home purchase agreements explicitly state, “That if the seller makes default in the performance of any of the conditions of this agreement, he shall pay Rs…… by way of compensation to the purchaser for such default; and if the purchaser makes default in the performance of any of the conditions  to be performed by him under this agreement, then the seller shall be entitled to forfeit the whole of the earnest money of Rs…….paid to him; and  that  the  party  not in  default shall be further entitled at his discretion either to annul this agreement or to specifically enforce it, in addition to any remedy that may be open to him”.

To take a decision in case of delay in construction, calculate how much interest costs you save on late disbursement of loan versus the penalties imposed on late payment.

Are the real estate markets too hot?

What you should look at

Go through the EMI sharing clause in documents to find out what is applicable to you. Pay consideration to the fact that EMI sharing means sharing only the interest amount.

For self-financed property, find out what the document holds for you. With almost all the markets, there is a difference between prices of homes when paying through different payment options. Flexi-payment option is usually cheaper so you must go through that route.

For homes financed through loans, you must calculate the interest cost of your loan and find out the EMI sharing options available with your builder. For homes under construction, you would pay only interest cost till construction carries on, and them start paying the principal.

While booking under-construction flats, research well about the track record of the builder, the timeline within which it has historically delivered, the reason for delayed delivery, if so, and the number of ongoing projects, which should not, ideally, be too high.

You should carefully scrutinise all charges applicable and if possible consult a lawyer for hidden charges and other anomalies, if any. And if extra charges have been altered ask the builder for a sanction letter provided by the government for all such alterations.

For ensuring carpet area, negotiate with the builder to add a clause of the minimum and maximum size beyond which the builder would not increase or decrease the size and ensure that the contract gets terminated if the builder crosses threshold limits.

Another good idea is to form a society or a group of all those buyers who booked their property with you. This gives gravity to your voice and it gets heard much more speedily than if you voice out alone. When taking possession, make sure your builder gives you the completion certificate as well, that is issued by the municipal authorities, saying that the building complies with the approved plan.


SC notice to Centre, states on pendency of cheque bounce cases

In a PIL, the IBA has submitted that huge sum of money gets blocked due to pendency of such cases and there are about 50 lakh cheque bounce cases pending in various courts

New Delhi: Expressing concern over the huge backlog of cheque bounce cases in various courts, the Supreme Court on Monday sought a response from the Centre and all state governments to a plea for framing guidelines for their speedy disposal, reports PTI.


While seeking responses of various governments, a bench of justices KS Radhakrishnan and Deepak Misra said it is “very serious issue.”


The court gave the order while hearing a public interest litigation (PIL) filed by Indian Banks’ Association (IBA), which sought directions for speedy trial of cheque bounce cases alleging that there are around fifty lakh such cases pending in various courts.


Senior advocate Shyam Divan, appearing for the association submitted that the Delhi High Court had recently framed some guidelines for such cases and it should be implemented across the country.


The bench while issuing a notice to the Centre and the states asked the association to conduct proper research on the issue.


The petitioner, an association of 174 banks and financial institutions, submitted that huge sum of money gets blocked due to pendency of such large number of cases.


“Considering the alarming situation of the pendency of cases and the constitutional rights of a litigant for a speedy and fair trial, it is necessary that the confidence of the banking industry which is the custodian of public funds in commercial transactions is not shaken,” the petition said.


“Due to huge funds of the bank and in turn of the public being blocked in such protracted litigations, the banks are finding it difficult to carry out their banking functions and as such it is necessary that this court lays down appropriate and effective guidelines to enable the banks to deal with dishonour of cheque cases expeditiously,” the petition said.



Vaibhav Dhoka

4 years ago

The PIL is eye opener for JUDICIARY.This is one area,but whole judicial procedures and accountability of both judge and lawyer need to be examined and changes made.The judges are not master in every field.Recently in Pune property acquisition by Pune municipal corporation many property owners got stay orders from civil courts and matter prolonged too long. Pune PMC court ruled that these courts have no jurisdiction to give injunction.In such case such cases be dismissed by circular or jurisdictional issue will delay the matter.So overhauling of judicial system is need of HOUR.

HDFC Q3 cons net profit jumps 27.6% to Rs1,706 crore on robust loan growth

HDFC’s individual loan book witnessed robust growth of around 31%, including addition of loans sold during this December quarter

Mumbai: Housing Development Finance Corporation (HDFC) on Monday reported a 27.55% rise in consolidated net profit to Rs1,705.83 crore in the third quarter ended December 2012 on sound growth in individual loan book, reports PTI.


During the third quarter to end-December, total revenues of the home loan provider soared 58.8% to Rs10,128.58 crore compared to Rs6,379.96 crore reported a year-ago.


“We continue to post sound results on the back of robust loan growth, especially in the individual loan segment,” HDFC vice-chairman and chief executive Keki M Mistry told reporters.


HDFC’s total loan book stood at Rs1.61 lakh crore by the end of the December quarter, up 21.7% from Rs1.32 lakh crore reported in the same period last fiscal.


However, the market reacted negatively to the numbers and the HDFC counter closed nearly 1% down at Rs814.50, after hitting a high of Rs828.05 on the BSE, whose main index Sensex rose by 0.3% to 20,102 points.


“The individual loan book witnessed robust growth of around 31%, which includes addition of loans sold during this period,” Mistry said, adding that around 85% of the total growth in loan book came from individual loan segments with the rest coming from the non-individual segment.


The non-individual segment is likely to do good in the fourth quarter of the fiscal, he added.


On the net interest margin front, the housing finance company recorded a 4.1% NIM in the third quarter.


“We hope that the spreads will remain stable in the near future,” Mistry said.


HDFC also witnessed an improvement in the asset quality with gross non-performing asset (NPA) standing at 0.75% in this period compared to 0.82% reported in the same period last fiscal.


Its capital adequacy ratio stood at 17.5% as of December with a Tier-I capital standing at 14.9%. As per the company, its subsidiaries in life insurance, general insurance and mutual fund among others contributed around 33% of the net profit during the reporting quarter.


Replying to a question on the plans to list its life insurance business, he said the company will take a call after the new Insurance Bill is passed by Parliament.


On his expectations from the Reserve Bank of India (RBI) on 29th January, Mistry said the central bank is likely to cut the repo rate by 25 basis points (0.25%), which may be followed up in the next policy review in March.


He also said he does not expect a CRR (cash reserve ratio) cut on 29th January.


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