Pre-EMI vs full-EMI: know the difference

Financing your new home with a home loan gives you various options related to repayment. Choosing a lender with nominal home loan interest rates is essential, and choosing wisely between pre-EMI and full EMI is imperative. This will help you manage your financial resources better as your home is constructed. Here’s what you need to know.

Pre-EMI payment

Pre-EMI refers to monthly payments that include only the interest component of your home loan. With pre-EMI, you are not repaying anything towards the principal amount. You will be given the option to pay pre-EMIs when your home or apartment is under construction. A pre-EMI is thus a reduced payment as it does not consider the principal component of the home loan. Once your home’s construction is complete, your lender will ask you to pay the EMI in full. Remember, a pre-EMI is not considered a part of the home loan tenor. It is designed to reduce the burden on you during the time that your asset is under development.

Full-EMI payment

Full-EMI or EMI refers to the normal home loan EMIs that you pay every month for your selected tenor. It includes both the interest and principal components. In case you have chosen the pre-EMI payment option, the full EMI payment starts upon completing of the construction of your home or apartment. Some financial institutions allow you to start paying full EMI from the beginning, even when the loan is still being disbursed in stages for your under-construction home.

When is pre-EMI ideal?

Pre-EMI gives you the option to start repayment, while better managing your cash flow as the amount is less than Full EMI. This way, you can invest the amount you save in short-term revenue-generation investments. This option is ideal for you if you wish to sell the property on completion. You can choose to pay Pre-EMIs when you are expecting a raise of a bonus or increased income due to other reasons in the future to reduce your current outflow.

When is full EMI the better option?

If you want to reduce the long-term financial obligation of a home loan, start paying the full EMI at the earliest. This way, you save on additional interest costs on your home loan. If you foresee a delay in construction, choose full EMIs. This is because the pre-EMI payment continues until the completion of construction.

Tax benefits

There is no difference in the tax implications whether you choose to pay pre-EMI or full EMI. Remember, tax deductions on your home loan interest are not applicable until the construction of your property is complete. On obtaining the possession certificate, the amount you have paid as interest will be totaled, and the same will be considered for a tax deduction in 5 equal installments.

Now that you know how pre-EMI and full EMI differ, check your home loan eligibility and crunch the numbers using a home loan EMI calculator. This will help you understand your choices much better. You can even choose to borrow a customized Home Construction Loan for your needs.

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