If you have not started the construction then the bank has all the reasons to seek an explanation from you
I had taken a home loan in June 2014, with the condition that I would start construction within two years from the date of procuring the plot. I still haven’t started construction because of basic amenities not existing there. Now the bank wants to charge me a higher interest rate on the loan. Can they do so?
Suresh Nair, Palakkad
The purpose of a housing loan is to use the loan for purchase or construction of a property. In your case, you have not started the construction, which leaves you in a state wherein the purpose of the loan is not clearly being met. So, the bank or the lender has all the reasons to seek an explanation from you. In case you do repay the loan fully, the bank will charge you a higher interest rate, because home loans typically cost less compared to a personal loan, which is what they would construe this loan to be. You will be in a better state, if you start construction. However, if you are unable to do so, be prepared to pay a higher interest when foreclosing this loan.