Difference Between Under Construction Vs Ready-to-Move-In Property Loans

Are you considering buying a property in India but confused about whether to opt for an under construction vs ready-to-move-in property loans? You're not alone. Many individuals face this dilemma when purchasing a home. Each option has its advantages and considerations that can impact your financial situation and decision-making process. In this article, we'll understand key differences between under construction and ready-to-move-in property loans, helping you make the ideal choice.

Understanding Under Construction Property Loans

When you opt for an under construction property loan, you are essentially purchasing a property that is still being built. Here are some important points to consider:

1. Stages of Payment

   When buying an under construction property, you make payments in stages as the construction progresses. These payments are typically linked to milestones such as excavation, foundation, completion of each floor, etc.

2. Delayed Possession

   One of the main challenges with under construction properties is the possibility of project delays. It's essential to factor in potential delays while planning your finances and consider additional expenses that might arise due to extended EMIs or rent payments.

3. Interest During Construction

   During the construction phase, you pay only interest on the disbursed loan amount rather than principal + interest. This is known as pre-EMI and helps ease the financial burden until possession.

   Example: Let's say Harish wants to purchase an under construction property worth ₹80 lakh and has decided that he will avail a loan of ₹60 lakh at an interest rate of 8.50 per cent for a period of 20 years. The time for completion of the construction is estimated to be 2 years. During this period, Harish will pay pre-EMI at an interest rate of 8.50% on the disbursed loan amount of ₹60 lakhs.

   Sample Calculation:

   Pre-EMI = (Loan Amount * Interest Rate)/12

   = (60,00,000 * 8.50%)/12

   = ₹42,500

4. Tax Benefits

   Under construction properties offer tax benefits only after possession. On getting possession, you can avail deductions on the principal repayment and interest paid under Section 80C and Section 24(b) respectively.

Exploring Ready-to-Move-In Property Loans

Ready-to-move-in property loans refer to properties that are already completed and ready for immediate occupancy. Here's what you need to know:

1. Immediate Possession

   One of the major advantages of ready-to-move-in properties is that you can move in as soon as the loan is disbursed, enabling you to save on rent and other expenses associated with temporary accommodation.

2. Certainty of Costs

   With a ready-to-move-in property, you have a clear understanding of the total cost upfront. This helps in better financial planning and eliminates uncertainties related to project delays or additional expenses.

3. Higher Purchase Price

   Ready-to-move-in properties generally come with a higher purchase price compared to under construction properties due to factors such as location, demand, and amenities.

4. Immediate Tax Benefits

   One of the advantages of ready-to-move-in properties is that you can start availing tax benefits on home loans immediately after possession. You can claim deductions on both the principal repayment and interest paid from the first year itself.

Comparing Under Construction Vs Ready-to-Move-In Property Loans

Now that we've discussed the key aspects of both under construction and ready-to-move-in property loans, let's compare them side by side:

Loan Types To Consider For Under Construction vs Ready-to-move-in Property Loans

When it comes to both under construction and ready-to-move-in property loans, you have different options to choose from. Some common loan types include:

• Home Loan: The most common type of loan for purchasing residential properties.
• Loan Against Property: A loan offered against the mortgage of an existing property, which can be used for various purposes.
• Construction Loan: Specifically designed for financing the construction of a property. Before finalising any property loan, it is best to do a property loan comparison.