Pre-EMI or Full EMI?

If you’re opting for a home loan, chances are you are confused whether to take full EMI repayment option or pre-EMI repayment option. Let’s say you are planning to buy a house that is under construction. Your lender will be releasing the loan amount as per the different stages of the construction. In the pre-EMI option, you have to pay only the interest on the loan as and when it is disbursed during the construction. In the full EMI option, the EMI repayment starts only when the property has been acquired by you in full.

A pre-EMI or a full EMI both have their own benefits. The following points differentiate the two options:

Overall tenure

In the pre-EMI option you will have to start repaying the loan, or the interest to be precise, from the day any of the loan instalment has been disbursed. Let’s say your loan tenure is 15 years. The builder takes 3 years to complete the construction, with the first instalment of the loan being disbursed in the 1st year. So, your loan tenure in this case will effectively be 18 years, accounting for the additional 3 years of interest repayment. Alternatively, in the full EMI option, you need to start paying the EMIs only upon acquiring the property in full.

EMI calculations

In the full EMI option you need to pay the EMI as per the overall loan amount with the help of EMI calculator. So, if you are repaying a loan of Rs.15 lakhs with a 15 years tenure and 11% interest, you will be paying an amount of around Rs.17,000 as monthly payments on disbursal of the full loan. Let’s say you have taken the pre-EMI option with Rs.3 lakhs disbursed in the first phase of construction of the house. In this case, you only need to pay the interest on this amount till the full amount is disbursed, at around Rs.2,400 per month.

Tax deductions

Both the EMI schemes have an equal tax treatment. The interest on the loan amount will be consolidated and divided into 5 parts, which can then be claimed as tax deductions within 5 years of the total loan amount disbursal. There are no tax benefits on repayment of the principal amount of the loan after this period has expired.

Which option to choose?

Both the options have their benefits and demerits. In case you are planning to sell off the property immediately after getting it, then the pre-EMI option will be a better option for you as you will be paying only the interests till then and can cover the loan amount after sale of the property.

A downside of pre-EMI is that if the construction is delayed, then you will end up paying more interest. Also, getting money back from the original holders can be a cumbersome task.