# Pre-EMI vs Full EMI – Understanding Payment Schemes for Under-Construction Properties

## What is Pre-EMI?

Pre-EMI must be something new for you if you are a regular full EMI claimer. Before you start, EMI stands for Equated Monthly Installment, which consists of Principal amount and Interest components. But when it comes to EMI, it is an interest portion on the claimed loan amount. Moreover, being a claimer, you need to pay the claim loan amount until or unless the full disbursal is completed.

For instance, applying for a home loan acts like an interest-only loan on the allotted amount by the bank or other financial institute until or unless the completion of your under-constructed home. Remember, your pre-EMI phase will end with completing your home. And once your house is complete, your full EMI payments phase will automatically start. To make calculating your EMI easier, you can take help from either the HDFC Home Loan EMI calculator or the SBI Home Loan EMI calculator.

Let’s exemplify the Pre-EMI by taking ₹ 40 lakhs at a 10.5% interest rate for 20 years for an under-construction property. And here, the bank plays an important role in dividing the principal loan amount into 4 stages. Now, as per the above conditions, you need to pay (8750 x 6) + (17500 x 3) + (26250 x 3) = ₹ 2,36,250 as pre-EMI (interest) towards the allotted loan amount. Hence, you need to pay ₹ 39,935 every month for the remaining 20 years.

### Pre-EMI vs. Full EMI

It has been seen that even if the allotment of the loan amount is done in stages, you still have been asked by a few banks to pay the full EMI. Besides, it will ask you to pay EMI from the beginning of construction even if you choose the ‘EMI under construction’ option. But at the same time, your interest amount will be calculated based on the amount allotted to the builder. The rest of the other amount will be calculated as the principal amount. In simple words, the EMI remains the same. Still, the EMI’s principal amount would be higher simultaneously if you repay the loan as quickly as possible.

Moreover, when it comes to making a choice between repayment of pre-EMI or full EMI during the construction phase of your dream home. There are many factors that you need to consider before choosing one. And these are:

1. The primary is to hire a financial expert to ensure good returns. And reducing the chances of fraud or any inconvenience during the tenure. Remember, paying less Principal and more Interest during the initial repayment of loan tenure is essential.
2. Next, being an investor, try out your hands to sell the property before the completion of the construction.
3. If you are struggling for cash now, expect a salary raise that can work as a booster for you. Try to get rid of this money struggle before claiming a Home loan and start investing in an under-construction property.
4. Another applicable condition is renting while waiting for property possession. And become stuck between the inability to both pay rent and full EMI.
5. The last one belongs to the duration of the construction period, which remains hardly for 1-3 years. On the other hand, the loan tenure, which lasts for 10-20 years, largely depends upon the loan amount.

At the end of the loan tenure, the customer’s satisfaction matters the most. This describes the wait and worthiness of the loan amount you claimed for your under-constructed home.

#### What if the Builder Agrees to Pay the pre-EMI?

Sometimes it becomes hard for buyers to understand the comprehensive schemes for under-construction projects by Lenders and builders. Therefore, keep in mind that there’s no end to innovative schemes by the builders to attract buyers. Moreover, one of the popular ones is the 80/20 or 90/10, or 75/25 scheme. More precisely, in this scheme, buyers make a 10 – 25% down payment towards the home, and the banks allot the rest. And here, the RBI launched an Advance Disbursal Facility (ADF) by banks. In ADF, the developer gets an upfront disbursal of the entire loan amount without any interface or linkage to the construction stages.

##### Tax Considerations

There are no guidelines for the deduction of the tax as part of pre-EMI or full EMI during the tenure of the construction phase. After the allotment of the possession certificate, it will start deducting the interest component of the pre-EMI or full EMI in five equal installments. It all takes place at the beginning of the year when your home construction gets complete. If you want to save yourself from long-lasting time taking EMI manual calculation? Then, either use the HDFC Home Loan EMI calculator or the SBI Home Loan EMI calculator to make it fast and easy.

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