ATM :: Home loan repayment plans come with various limitations

Here are some of the plans that builders offer and the associated liabilities
Saurabh Kumar | First Published: Tue, Jan 20 2015. 06 36 PM IST | Live Mint
Buying a house is one of the most important albeit complicated decisions that one has to make. Apart from scouting for a good project, location and credible builder, a buyer also has to decide on the payment mode to the builder or developer.

Every buyer’s financial situation is unique and the need of a loan varies. Also, the repayment terms play a vital role and depend on the cash flow regularity of the borrower. This makes it important to understand the payment plan on offer, and the limitations that it brings along. Here are some of the plans that builders offer and the associated liabilities.

Standard payment plan
This is for those who can afford a high upfront payment, maybe around 30%. The rest of the payment needs to be made at the time of possession. This kind of a payment plan gives the buyer time to secure a loan from a lender in another 2-3 years, and is usually taken for a project that is yet to be completed. As a buyer, this plan provides a better exit option if the project is delayed, but comes with the limitation of having to pay a high lump sum at the beginning, which may cause short-term cash crunch if not planned ahead.

Construction-linked plan
Under this arrangement, an initial payment of 10% can be made to book a house and another 10% within 30 days of booking. After that, at each stage of construction of the project, another pre-decided amount, say, 10%, needs to be paid. Since the payment is done as the project proceeds, it helps in staggering the payment over the time taken to complete the project. A pre-equated monthly instalment (EMI) is applicable for the home loan, which essentially means payment of the interest amount every month till the time of possession. The actual EMI starts when the property is handed over to the buyer. This plan allows lower and staggered payment over a period of time but the overall pay-out may be more.

Other plans
There are some other payment plans as well, such as 20:80 or 10:80:10, that you may have heard of. These are time-linked plans and require the buyer to pay a certain percentage of the total value of the property within a particular time. For instance, under the 10:80:10 plan, the buyer needs to pay 10% to book a property, 80% in another 1-2 months, and the remaining 10% at the time possession. The payment has to be made irrespective of the stage of the project’s construction. This plan can be risky if the project is delayed—the payment would already have been made, but the project would still be incomplete; the buyer may get stuck.

A variant of this is the flexi plan. Under this, 10% of the payment is done upfront, another 30-40% within 1-2 months, and the rest can be made at the time of possession.

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