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Pre-EMI vs Full EMI - Know the Difference

  • Highlights

  • Pre-EMI includes only interest component

  • Full EMI includes interest and principal components

  • Manage your cash flow better with Pre-EMI

  • Pay less interest with Full EMI

Financing your new home with a home loan gives you various options related to repayment. While choosing a lender with nominal home loan interest rates is important, also choose wisely between Pre-EMI and Full EMI. 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 take into consideration 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 simply 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 on completion of the construction of your home or apartment. Some financial institutions allow you to start paying full EMI from the very beginning, even when the loan is still being disbursed in stages for your under-construction home.

Home Loan EMI Calculator

When Pre-EMI is ideal

- Pre-EMI gives you to option to start repayment, while better managing your cash flow as the amount is less compared to 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 Full EMI is 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 completion of construction, and this means you will end up paying a larger amount as interest on your home loan.

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 totalled and the same will be considered for tax deduction in 5 equal instalments.

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 customised Home Construction Loan for your needs.

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