Home loan is a type of credit that you can avail from any bank or a HFC (Housing Finance Company) of your choice and get funds to purchase your dream home or constructing a house on the plot you own. The lenders decide the maximum amount you can borrow based on your eligibility. And, once the loan is approved and disbursed, you can repay the same in smaller instalments known as EMIs (Equated Monthly Instalments) throughout the loan tenure, which can spread up to 30 years.
If you are availing a home loan for buying an under-construction property, the lender disburses the sanctioned amount in phases as per the progress of the construction. However, the repayment begins as soon as the lender disburses the first instalment. In this case, you only have to pay the interest until the full amount is disbursed and you get the possession of the property. This part payment is called Pre-EMI. The pre-EMI amount may vary from borrower to borrower based on the amount disbursed and home loan interest rates levied by the lender.
When can you avail Pre-EMI option?
You can choose the pre-EMI option under following circumstances
- If you have a low cash flow and you cannot afford to pay the full EMI.
- If you have some urgent credit needs and want to save money for that.
- Since the pre-EMIs are lower than the regular EMIs, you can invest the difference amount to get higher returns.
- If you are planning to sell the property right after the construction is over or within a few years from the date of getting the property possession.
How can Pre-EMI be useful?
The Pre-EMI option can be useful to you if you live in a rented house and have to pay the rent until you get possession of the under-construction home you purchased. However, if you have the financial capability to pay the regular EMIs and the rent for the rented house, it is better to pay the regular EMIs from the beginning.
Important things to consider before choosing Pre-EMI option
- When you choose the Pre-EMI option, the actual loan repayment tenure starts after the construction is fully completed. Until then the amount you pay as Pre-EMI neither affects the loan amount or the tenure.
- If, for any reason, if the builder does not complete the construction of the house within the prescribed time and there is a delay in getting the possession, you would have to continue paying the Pre-EMI. This means you would be paying additional interest to the lender. You can use the loan EMI calculator to compute the additional interest you would be paying by opting for Pre-EMI.
- As per the Indian Income Tax laws, you cannot claim any tax benefits on paying only the interest amount to the lender. In case of the regular EMI payments, you can claim the entire interest you may have paid beforehand.
- Sometimes, the lender may mistakenly enrol you for the Pre-EMI option without your knowledge or consent. This can be highly risky, especially if the loan application does not have any provision to choose the facility.
Now that you are aware of what Pre-EMI is and things to consider before choosing it, make a wise decision based on your financial status and repayment capacity.