What is the 10:90 payment plan while purchasing a property?
Simply explained, in the 10:90 plan, the buyer has to contribute 10% of the total cost of the property from their pocket at the time of booking and pay the rest at the time of possession of the property. Traditionally, CLP has been the most commonly offered payment plan by builders. CLP stands for Construction Linked Plan, which requires buyers to make payments after the construction reaches specific milestones. For example, you might have to put in 15% while booking, 20% when construction starts, 60% during various stages of construction and rest during possession. There are no standard milestones and each builder can define their payment milestones.
How does 10:90 plan work?
- Book a property by paying 10% of the total price.
- Avail Loan from preferred bank at best possible rate of interest.
- No payments or loan EMI until possession.
What are the benefits of a 10:90 plan?
- The property could be purchased with minimal investment. E.g. if the property costs Rs. 70 lacs, you can book with just Rs. 7 lacs.
- 10:90 plan doesn't involve any interests or home loans after the initial payment until possession. As an example, if you took a home loan at a 6.9% interest rate for an amount of Rs. 70 lacs, you will pay Rs. 5.25 lacs in interest each year. With 10:90, you easily save Rs. 5 -15 lacs based on the cost of your property.
Comparison of 10:90 plan vs CLP
Imagine you intend to purchase a property costing Rs. 60 lacs which will be ready for possession in Dec 2023. Let’s see what it would look like if you went ahead with the traditional payment model.
Scenario with traditional payment plans
Traditional payment plans require you to pay interest EMI per month which can cost you lacs of rupees.
1. Home Loan Interest Rate
- The current home loan interest rate is 6.9%, which means in 2-3 years until possession, you may have to pay up to Rs. 10 lacs in interest.
- That's already 15% of the property cost you are paying as interest.
- You are essentially losing this money and it's a negative investment.
2. Lost opportunity cost due to payments made
- You will pay up to 80% of the amount before possession
- This means you invest up to Rs. 39 lacs and cannot even live in the property or rent it out!
- If you keep these Rs. 39 lacs in a fixed deposit at 7%, you will earn Rs. 3 lacs in interest each year.
- You are not only losing this potential return but also paying the home loan interest rate as mentioned above.
| Scenarios | 10:90 Plan | CLP Plan |
|---|---|---|
| Property Cost | Rs. 60 Lacs | Rs. 60 Lacs |
| Number of years until possession | 3 years | 3 years |
| Upfront payment during booking | Rs. 6 Lacs (10%) | Rs. 9 Lacs (15%) |
| Additional payment until possession | Zero | Rs. 30 Lacs (65%) |
| Loan amount before possession (if opted) | Zero | Rs. 51 Lacs (85% Loan amount) |
| Bank loan interest paid until possession (if opted) | Zero | Rs. 11.4 Lacs |
| Total investment before possession | Rs. 6 Lacs | Rs. 39 Lacs (7.5% for 3 yrs) |
| Effective cost of property on day of possession | Rs. 60 Lacs (Rs. 6L booking + Rs. 54L due) | Rs. 71.4 Lacs (Rs. 39L paid + Rs. 21L due + 11.4L interest) |
3. No rental income until possession
- Rental income is a great way to subsidize your EMI payments.
- With no possession of the property, you have no rent income.
4. Purchasing using 10:90 plan
- You will pay approx Rs. 6 lacs for booking the property and obtain a home loan.
- That's it.
- No EMI, No partial payments until completion for occupancy.
5. Comparison of cost – 10:90 Plan vs traditional CLP
- For our hypothetical property costing Rs .60 Lacs, let's compare how much money it will actually cost you and how much return on investment you will get.
6. Detailed Breakdown of Payment Slabs for 10:90 vs CLP
- Note: Payment slabs for CLP plans vary for each builder, this table shows representative slabs..
| Scenarios | 10:90 Plan | CLP Plan |
|---|---|---|
| Property Cost | Rs. 60 Lacs | Rs. 60 Lacs |
| Number of years until possession | 3 years | 3 years |
| Upfront payment during booking | Rs. 6 Lacs (10%) | Rs. 9 Lacs (15%) |
| 1st Payment Slab (~ 6 months) | Zero | Rs. 9 Lacs (15%) |
| 2nd Payment Slab (~ 12 months) | Zero | Rs. 12 Lacs (20%) |
| 3rd Payment Slab (~ 18 months) | Zero | Rs. 18 Lacs (30%) |
| Final Payment (at possession) | Balance amount | Rs. 12 Lacs (20%) |
Which plan to choose?
Every property is different, and you can decide for yourself based on the information above.