What is Pre-EMI and Full EMI repayment schemes for home loans? Know difference and which is better

 


Most people don’t have enough money saved to buy a home entirely, even though it’s sometimes one of the biggest expenditures they’ll ever make. One might obtain a home loan to pay for the costs of the building if one desires to build their own house. Refinancing a mortgage can be done by a homeowner to benefit from lower interest rates, reduced monthly payments, or to move to a different kind of loan. Overall, a home loan can be a helpful instrument for assisting individuals in achieving their housing ambitions, managing their finances, or making real estate investments.

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Home loans are the most popular ways for people to purchase a home. Home loans can be repaid through equated monthly payments spread over tenures lasting up to 30 years. It is very important to choose a lender with affordable interest rates. In case you are choosing to buy a house which is under construction then you’ll have to pay Pre-EMI. Let’s understand more clearly what it is.

What is Pre-EMI?

Pre-EMI is the interest that is only charged on loans. During the time that the building or house is being built, this sum is paid, and after that, it is over. Since only the interest portion of the EMI is paid out and the principal loan amount is left untouched, the pre-EMI amount is smaller than the whole EMI amount. The loan tenure does not include the pre-EMI period.

When should one choose Pre-EMI option?

An individual should choose the PRe-EMI option when he/she has less money to pay the rent as well as the loan repayment EMI. They can also choose if they have plans to sell the property either right after the construction or in the first few years. 

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What is Full EMI?

A house loan’s full EMI instalment includes both the principal and interest payments. Once the building or home is fully constructed, this payment will start. When the loan amount is being disbursed in phases, some banks also authorise the start of full EMI payments.

What is the difference between Full-EMI and Pre-EMI options?

  1. Loan disbursal: When the loan amount is disbursed in full at once, the Full-EMI option is typically used. On the other hand, when the loan’s sum is disbursed in instalments, the Pre-EMI option is typically chosen.
  2. Calculation of interest rate: The interest for the Full-EMI option is based on the main loan amount, whereas the interest for Pre-EMI is compounded based on the loan amount given to the builder.
  3. Loan repayment period: By selecting the Full-EMI option over the Pre-EMI option, the debt is paid off more quickly because the monthly instalments under this option include a bigger share of the principal amount.
  4. EMI payments: With the Pre-EMI option, the monthly payments started as soon as construction began. In contrast, the Full-EMI option’s EMI payments don’t begin until the property is finished and in your possession. 

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