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Understand What is Pre-EMI and How to Calculate It
- Published on: 19 Sep 2024
Pre-Equal Monthly Instalments or pre-EMI are essentially associated with home loans. If you are new to the world of finance, then this may be a new term for you. When you get a home loan, you will have two options for EMI:
Both options come with some benefits and features. Read on to know which option will suit your finances the best.
This option allows you to only pay the interest during the construction period of the property you are buying. Once the property is ready for possession, you can start paying the principal amount.
Pre-EMI applies only to loan amounts disbursed in tranches during the construction period. Thus, it is of a smaller amount and reduces the repayment burden during this phase.
Here are some pros of choosing to pay a pre-EMI for your home loan:
The amount you pay is less than what you must pay as full EMI. The pre-EMI interest is the annual interest amount divided by 12.
If you are a first-time homebuyer, paying Pre-EMIs can help you get used to monthly repayment. This enables you to shift to full EMIs seamlessly once construction is complete.
Under section 24 of the Income Tax Act, the interest payments you make are tax-deductible after the construction is completed. However, this is only if you choose the old tax regime for a self-occupied property. If you are planning to rent it, you can get the tax benefits on this in both cases, whether you choose the old or new tax regime.
While your monthly payments are less, you will end up paying more as interest on what you borrow in the long run, considering your full EMIs.
The pre-EMI tenure is an add-on over your overall repayment period. This increases your complete repayment tenure, depending on how long the construction takes.
Also Read: Benefits of Making Timely EMI Payments
Make a smarter decision by keeping their distinctions in mind relating to the cost, tenure and more.
| Parameters | Full EMI | Pre-EMI |
|---|---|---|
| Loan Disbursal | Complete loan amount disbursed | Loan disbursed in portions as per stages of construction |
| Interest | Interest is to be paid on the total principal amount | Interest only on the disbursed amount |
| Component | Interest and principal | Only interest |
| Tenure | Shorter repayment tenure | Longer repayment tenure |
| Impact on Principal Amount | Decreases the principal amount | No impact on the principal amount |
| Payment Options | Starts after the construction period | Starts during the construction period |
| Property Reselling Options | There are limited options to resell your property during this time | You can resell the apartment during construction |
| Optimal Condition | Allows you to invest in the property after the construction is complete | Allows you to invest in a property while it is being constructed |
Also Read: How To Make Advance Emi Payment Online
Here are some situations where this option is more suitable.
To calculate your pre-EMI, you can follow these formulas.
Monthly interest rate = Total interest rate / 12
1.2
Interest = Loan amount x Monthly interest rates
1800000
Amount = Pre-EMI interest x Number of months
Total Repayment = Loan amount + Total EMI amount
You can also use a pre-EMI calculator to make this easy on yourself and prevent any mistakes.
Say that you plan to take a loan of ₹20 lakhs for an under-construction property and the fixed rate of interest is 8% with a repayment window of 20 years. In this case, your full EMI will come to ₹16,729. Now, say that you choose pre-EMIs and your loan is given to the builder in five instalments as per completion of construction.
Say the first loan instalment is ₹4 lakhs for 6 months. Your pre-EMI will only be the interest on this amount, which comes to ₹2,666. Say the second loan instalment is of ₹4 lakhs post 6 months. Now, your pre-EMI will be ₹5,333. This will keep increasing until all the money is disbursed and you start paying full EMIs.
Once you have a cohesive understanding of how this works, you can choose the best option. Since pre-EMIs end up increasing your overall interest, it may be better to choose full EMIs in case you plan to live in the home yourself. To do up your new home, you can opt for a Fibe Instant Personal Loan with minimum paperwork.
This simplified borrowing solution comes with a competitive rate of interest and a comfortable repayment tenure of up to 36 months. To top it off, you can close your personal loan any time before the tenure with no extra charges. Apply today on our Personal Loan App or register on our website.
Once you understand the meaning of pre-EMI, you can take a call about whether this is a worthy option for you. It can be ideal if you plan to sell the home after construction or want to invest in a home in the pre-construction period.
Yes, you can switch to full EMIs either after the construction is finished or even while construction. This depends on the lender you choose and its policies.
You can avail of the tax deduction on the interest you pay as pre-EMI only if you choose the older tax regime and self-occupy the property. You can also claim it if you plan to rent out the property no matter which tax regime you choose.
This entirely depends on your current financial situation and your future goals with the property you plan to buy. If you want to pay less overall, choose full EMIs as they reduce your total interest dues. If you want to invest in real estate and sell the property soon after construction, pre-EMIs are the best option.
