Unlike the old times, down payment is not only the way to secure property in the present scenario. Developers today offers a wide variety of payment plan to carry out the payment procedures. Some of the most common payment plans apart from the traditional methods includes the construction linked plan, subvention plan, Flexi payment, and time linked payment plans. They have been discussed below along with the various pros and cons associated with the same.
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What is construction linked payment plan?
Construction linked payment plan is a plan wherein an alliance is made between the bank, builder, and the homeowner. The amount is paid by the bank to the builder until the possession is obtained by the owner. The payment or disburse made by the bank will be concerning the construction progress. This plan functions in such a way that the bank disburses a particular pre-decided amount based on the progress or completion of the project.
The main advantage of this plan is that it is highly favoring the middle –income investor who does not intend to enter into a huge financial commitment. The repayment of the borrowed amount begins only after the obtainment of the possession. However, the owner has to make the payment for current residence and Pre-EMI, the interest component of the loan before the possession is obtained. This plan is also expected to reduce the risk for the bank as well as the buyer.
The buyer enjoys various benefits such as benefits on Pre- EMI interest and benefits on completion on the principle amount. This plan also provides the buyer will a considerable amount of time to gather amount as EMI, as it gradually increases. It is beneficial while you decide concerning the justified amount to be paid to the builder. All the relevant documents need to be checked and all the additional expenses considered. On a safer note, it is important to read all the clauses of the agreement, especially the exit clause and the clause about the refund of the amount in cases whereby the builder exits the plan before the completion of the project.
Is the subvention plan a good option?
A subvention plan is a scheme wherein the grant of money or aid is made by the government. In this scheme, the buyer, banker, and developer enter into a tri-partite agreement whereby the buyer provides the developer with 5-30 percent of the money up front and the remaining is funded by the bank as a loan. The builder pays the interest until the possession is transferred and the liability to pay back the loan only begins after the same.
This is a good option for the buyer because the burden of EMI is not placed on his shoulders until the subvention period. As the interest is paid by the builder there is a benefit that the construction process will not be prolonged by the developer for a long period. Earlier the loan amount was paid in full to the developer in the beginning, however, according to the regulations of RBI in 2013, the amount is made payable only after the completion of a particular task.
Earlier the bank used to disburse 20% of the amount to the buyer while 80% was disbursed to the developer which puts the buyer at risk as the loan was acquired under his name. To eliminate this risk, RBI directed the banks to issue amount to the developers only after the completion of a targeted milestone. Another benefit attached to this scheme is that it enables the developer to arrange funds at a lower rate and the buyer from the risk of investing large amounts all together.
What is the time linked payment plan?
This payment plan is not very common. According to this plan, you are required to make payments based on the installment timetable prepared by the builder. This amount is payable irrespective of the construction progress in the property. Sometimes, the builders also offer benefits such as an 8-10% discount on the property cost for availing this option. However, one major concern of this plan is that the surety that the constructions will be completed at the right pace is low. This method is however better than the down-payment plan as you are not putting the entire amount upfront.
What is the Flexi payment plan?
This plan requires 50% of the total amount to be made before the construction work begins. It usually takes 3-6 months of the booking time to make the payment of this amount. The remaining payment is to be made as to the construction on the property progresses. Thus it can be stated that this scheme is a mixture of the down-payment plan and the construction linked plan. One of the disadvantages of this plan is that the interest rate on this plan is generally higher than the interest that is payable while employing the construction linked payment plan.
Summing up, the construction linked payment plan and the Subvention plan are schemes wherein a tripartite agreement is created by the builder, banker, and buyer. These are methods for middle-income groups that cannot arrange funds completely. The subvention scheme is also recommended as it provides various other benefits to the buyer such as the benefit on the EMI, etc.