What happens when you don’t build a house after taking a loan?

Home loans/residential loans have a lower interest compared to that of other loans because the assumption is that you will build a house in 2-3 years. But if you fail to construct and do not submit the documents relating to the completion of construction with your banker, your loan will be converted into a normal loan. In this case, you will be charged higher interest rates with retrospective effect from the date of the actual agreement. This will increase the outstanding loan amount for you, and you will end up paying higher interest.

Banks like SBI may or may not issue a separate loan for the plot and construction, and when they do, you will have two different loans with two loan account numbers. Whereas some banks may not issue separate loans for the two, and the same loan will be categorized into two parts, say, 40% for plot and 60% for construction. You can also avail of 80C benefits on these loans. Sometimes bank representatives tell you that nothing will happen, and this 2-3 year later submission of documents is just a formality.

Well, one should not fall for that, these bank representatives misguide the customers to increase their targets, and they do not open up about the consequences. Considering, it is none of their business if you pay more interest at the end.

If you don’t build a house in the said period, you will pay more interest since your home loan will be converted into a normal loan. This means you should apply for a home loan when you are sure about constructing a house over it.