Construction Linked Plan or Flexi Payment Plan – Which Home Construction Payment Plan to take

If you are planning to buy a new home, but do not have sufficient funds to buy it right away; do not worry!!! Almost all banks offer home loans to let you easily buy your dream home. Even though the banks are ready to give you home loan, you may not afford the EMIs (Equated Monthly Installments) as the prices of houses are so high. This is the reason people are now looking for other available options where the prices are somewhat affordable.

Now, builders are coming up with options to book flats even before construction. It is a win-win situation for both consumers and the builder, as builder will get the sufficient funds to construct flats and consumers will get the flat in pretty decent rates. In Delhi-NCR region of India, these flats cost in the range of $60,000 USD to $90,000 USD, whereas the similar ready to move house will cost around $90,000 USD to $150,000 USD. The only situation not favourable for the consumer is that he/she needs to wait for almost 4-5 years to get the flat ready. Another thing is that you do not know how the actual flat will come up, i.e. how will it look after completion. This is because the builder will provide you with just a plan on paper at the time of booking the flat.

To book these types of flats, you generally have to pay 10% of the total cost. Rest of the amount will be paid as the construction goes on. Actually, you have three options to pay the remaining amount. One such option is 'down-payment plan', where you will have to pay 80-90% of the total amount initially and pay rest of the money at the time of possession. This option is the cheapest and you will get the flat in about 10% less than the actual cost. But most people normally do not take this option for the under-construction flats as they will have to pay a whopping amount of money. Also this option is considered somewhat risky, as the construction of the building will still take some time even to start.

Instead of down payment plan, if you choose to buy the flat by paying 10% as booking amount then there are generally two options provided by builder to pay back the rest amount. One is known as 'Construction Linked Plan' (CLP) and another is 'Flexi Payment Plan' (Flexi). Both plans have their own pros and cons. Flexi Payment is considered as somewhat less expensive than CLP by almost 6%.

Which construction plan is better is often the question in mind of most of the people planning to buy the house. In Flexi, you have to pay almost 50% of the total amount by the time construction starts. It will take almost 3-6 months from the booking time to pay this amount. Rest of the amount will have to be paid as the construction takes place. While in CLP, you have to pay around 30-35% by this time and rest as per the construction plan. So, in order to choose between these two plans, you may need to do some calculations and check your budget.

If you have enough cash to pay 50% amount, then opt for Flexi payment plan as the cost of the flat will be less than CLP by almost 6%. But, if you can only manage for 35% initially, you may opt for Construction Linked Plan and arrange rest of the amount which will be required during the construction period. In case, you are planning to take home loan, you must calculate the amount of interest you will have to pay annually. If you opt for a loan to purchase under-construction flat, your EMI will have only interest part and no principal amount will be deducted till the possession. So, the more you pay to the builder, more interest EMI will be charged by the bank.

In case of Flexi plan, interest on almost 50% amount will start from the first year itself, while in case of CLP, interest on only 35% amount will be charged. So, if you can afford the interest amount, opt for Flexi payment otherwise opt for CLP. Though, CLP costs more than any other plan, but the burden of interest will be less in the initial stages.

For those who will be taking loans, cost of house under CLP will cost you around 10% more in the long run, including interest amount which you will be paying on the difference amount for the loan tenure period.

To book under-construction flats, you must always choose a reputed builder as they will give you the flat as promised and on time. You should also check how many projects that builder is currently running, and how many they have completed on time. There should not be many projects running at the same time, as chances of getting delayed will then be more.

Take an example to easily calculate the difference amount between CLP and Flexi payment plans.

Price of Home under Flexi: $100,000 (Rs 4,500,000)

Price of Home under CLP: $106,000 (Rs 4,770,000), which is 6% more than Flexi

Difference amount: $6,000 (Rs 270,000) ---- A

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Loan Amount under Flexi (80%): $80,000 (Rs 3,600,000)

Loan Amount under CLP (80%): $84,800 (Rs 3,816,000)

Difference amount: $4,800 (Rs 216,000) ---- B

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For Flexi, you will be taking home loan for $80,000 while for CLP, you will take $84,800.

The amount of interest on the difference amount ($4,800) for 20 years at 9% annual interest rate: $5,560 (Rs 250,200). ---- C

Total difference amount between CLP and Flexi:

          A+C = $11,560 (Rs 520,000). ---- D

So, Cost of home under CLP will be $111,560 (Rs 5,020,000), which is approximately 11.5% more than Flexi Payment Plan. Obviously, we have not calculated the interest amount that will be paid till the possession time.

Initially, as you will pay around 50% upfront in Flexi, there will be 15% difference initially for around a year or two. As the construction takes place, difference amount gets reduced and we can take 10% difference amount for next two years.

Difference Interest amount (15%) for two years:

          $8,900 (Rs 400,500) - $6,678 (Rs 300,510) ~ $2,222 (Rs 100,000)

Difference Interest amount (10%) for third year:

          $6,300 (Rs 283,500) - $5,724 (Rs 257,580) ~ $576 (Rs 25,920)

Difference Interest amount (5%) for fourth year:

          $7,200 (Rs 324,000) - $7,155 (Rs 321,975) ~ $45 (Rs 2,025)

Total interest paid: $2,843 (Rs 127,935) ---- E

So, the total amount paid extra in CLP would be:

          D-E = $8,717 (Rs 392,265), which is around 9% more than Flexi Payment Plan.

Now, you must be having a clear picture about the difference between Construction Linked plans and Flexi payment plan. Initially for the first two years, Flexi plan would be heavy for your pocket, but after that it will be beneficial and will save you enough money. So, if you can afford initial 2 years EMI easily, go for Flexi, otherwise Construction Linked Plan will be suitable for you.

Happy Home!!!

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