Financing your new home through EMI gives a sense of ownness. However, it may be a costly deal but a fair one too. With property rates rising with each passing day, the thought of buying a home through savings appears to be impossible. The most common way to buy a home is through a home loan. A home loan provides you with alternatives associated with the mode of repayment. One easy repayment mode is that of Equated Monthly Installments (EMIs).
An Equated Monthly Installment (EMI) is a set sum paid by a lender to a borrower in exchange for taking out a loan. For home loans, there are two sorts of EMIs: full EMI and pre-EMI. You can choose the loan payback plan based on your financial stability. Read on to understand better about Pre EMI and Full EMI.
Understanding Pre EMI
Monthly payments that simply comprise the interest component of your home loan are referred to as pre-EMI. You don’t pay anything towards the principal amount when you use Pre-EMI. When your house or apartment is being built, you will be given the option of paying Pre-EMIs. As a result, a Pre-EMI is a lower payment because it excludes the main component of the home loan. Your lender will urge you to pay the EMI in full after the construction of your property is completed. Remember that a Pre-EMI is not included in the term of the house loan. Its sole purpose is to relieve you of the load of development while your asset is in the works.
Understanding Full EMI
The usual home loan EMIs that you pay every month for your chosen tenor is referred to as full EMIs. It consists of both the interest and the main components. If you choose the Pre-EMI payment option, the full EMI payment will begin once the construction of your home or apartment is completed. Even if the loan for your under-construction home is still being disbursed in stages, some financial institutions allow you to start paying full EMI right away.
Pre-EMI vs Full EMI
The following principles will help you understand the Pre-EMI vs Full-EMI financing.
- Loan disbursals differ: It is that if you choose full EMI, you can get the complete loan amount disbursed; however, if you choose pre EMI, the loan amount is only partially disbursed.
- Interest rates differ: Because full EMI interest rates are calculated on the entire principal amount. The pre-EMI interest rate is determined using the loan amounts that have been disbursed.
- EMI payments: In the Pre-EMI option, monthly payments begin as soon as the building begins. The home loan EMIs for the Full-EMI option, on the other hand, do not begin until the property is completed and you have possession.
- Impact on loan components: Using the Full-EMI option to pay each monthly instalment reduces the principal amount and length of the loan. The EMIs paid through the Pre-EMI option, on the other hand, have no effect on the principal amount, loan payback term, or interest rate.
- Property resale: With Pre-EMI, the borrower will be able to sell the property shortly after it is completed or within a few years. Individuals who choose the Full-EMI option, on the other hand, will be unable to sell the property for a set length of time.
- Impact on finances: Paying an EMI through Pre-EMI can be less expensive because the borrower only has to pay interest during the pre-construction period, which is not the case with the Full-EMI option.
The tax effects are the same whether you pay Pre-EMI or Full EMI. Remember that you won’t be allowed to deduct interest on your house loan until the construction of your home is finished. When you get your possession certificate, the amount you paid in interest will be totalled and deducted from your taxes in five equal instalments.
The Bottom Line
Opting for EMI as an option to repay your home loan is like having a key to your home’s door lock. EMI plays a vital role in a home loan. One should be well informed about Pre EMI and Full EMI to make a prudent decision while considering Home loan EMI. Consider either one of them as per your financial suitability. For more information regarding home loans, visit Piramal Capital & Housing Finance (PCHF) website now!