House construction within 2 year of loan sanction

[santoshg83]

I have taken housing loan for Site purchase from SBI, Is it compulsory to start construction of the house within 2 years and complete it within 3 years.

Has anyone come across same situation, please share your experience.

Thanks in advance.
Santosh

[ardesarchitects]

Hi Santosh,
If it is a composite loan ,yes you need to start the construction by the 2nd year.Completion time is not a fixed.If you fail to start the work then your loan will be automatically gets converted to site loan alone.

Regards
Ar.Praveen.n
Ardes Archtiects and Interior Designers
ardesarchitects@gmail.com

[santoshg83]

Thanks Praveen. Will there be any penalty or change of rate of interest if it gets converted to Site loan?

[jackalbda]

Though , theoretically what Praveen told is right, I know atleast 3 of my friends who have taken loan from SBI have crossed 2 year limit without starting the construction.Bank has neither converted the loan nor asked them to start the construction. I myself is running in my third year and SBI has not taken any action yet. I had been to bank 3 weeks back and told them that I might not be able to start now. They asked me to give a letter in writing explaining when , I will start and why there is a delay. This too has happened only because of my initiative and bank was not pro-active from their side.

Now if the bank really follows up and convert the loan to Site loan, there will be a minimum interest rate hike of 3 percentage.

[santoshg83]

Thanks jackalbda.

[yashmys]

Hi Jackal,

So you are just paying the interest component and not the interest component since the loan is not completely disbursed ?

Thanks,
Yash

[jackalbda]

In SBI , there is nothing like that. I am paying both the principal and interest component. Its a maxgain loan and hence I pay interest for whatever outstanding amount is and the rest goes to principal. The outstanding is calculated daily as the actual outstanding ( the amount I took as loan minus the principal I paid back ) minus the amount I have kept in my loan account. So for eg, assume I took loan say amount L and I have already paid P . Then the actual outstanding is L-P . Now assume I have kept say D amount in my loan account ( whatever amount I have with me today just like in a savings account ), then my interest is calculated for the amount L-P-D.

Hope that clarifies.

[smvdvs]

Than this could be burden on individuals, we are asked to pay both principal amount and interest amount for the money which we are presently not using ( i mean for construcion loan if u are planning for construction after 1-2 yrs)

[vgbarkur]

Few banks have rules where you have to start construction within 2 years else loan will be converted to commercial loan plus fine and interest rate is usually 3% more than housing loan. This has happened to one of my friend. Forgot the bank name.

Second part on paying full EMI for sanctioned value even when part of loan is availed. That is good except for housing loan tax benefit.
Bank calculates interest for used money only and since actual EMI is paid, more of interest component is getting deducted which is small also initially. Your burden will be reduced fast initially until remaining loan amount is used. Its benefit is almost like pre payment. If you construct the house within 5 years then you can claim exemption for Pre EMI paid in 5 installments.

[GopalSumukha]

Thanks everyone for your inputs
I am sure, those who already have the housing loan would also have been claiming IT Rebates

Can you please drop in your inputs on the terms and conditions for availing IT rebate for housing loans(Especially Site loans) ?
One of my friend has a SBI - loan -and has purchased a site and he is not aware of how he can claim income tax rebate untill he is done with construction of the house. He is yet to start with construction and hopes to complete the same within an year.
Thanks in advance for your reply
Regards
Gopal