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What is Pre-EMI?

Submitted by admin on December 3rd, 2024

If you have taken or are planning to take a home loan, you may have come across the term “Pre-EMI.” It sounds a little technical, but it is pretty simple once broken down. Let’s dive into what pre-EMI means and how it works.

The Basics

Pre-EMI is a “pre-equated monthly installment” paid as an interest payment of the loan on a home before its whole EMI, which pays both principal and interest payments, starts. You would have paid Pre-EMI mostly when your property is under construction and the lender has not paid out the whole loan amount.

How does it work?

When you take a home loan for a property that is still under construction, the bank does not give you the full loan amount all at one go. The money is disbursed as stages of the construction gain their completion. For example,

1. You get a small portion during the foundation stage.
2. Another portion is during the halfway stage of the structure.
3. During completion, the full loan gets disbursed.

Now, because you haven’t received the complete amount yet, the lender doesn’t charge the entire EMI. Instead, they charge interest only on the amount disbursed up to that point. The interest is what’s referred to as Pre-EMI.

Why Do Pre-EMIs Exist?

Think of Pre-EMI as a way to ease into your home loan payments. You’re not paying the full EMI right away because the loan isn’t fully disbursed, and your house isn’t ready to move in. This system is designed to give borrowers some breathing room until the property is ready.

Calculate your EMI here.

Pre-EMI vs. Regular EMI

To put it simply:

• Pre-EMI: You pay interest only on the disbursed amount. No repayment of the principal yet.
• Regular EMI: Once the property is complete, you pay the full EMI, which includes both principal and interest.

Advantages of Pre-EMI

1. Lower Initial Payments: Since Pre-EMI is just the interest, the monthly amount is lower than full EMI.
2. Flexibility: It’s helpful for people who are already paying rent while waiting for their new home to be ready.

Disadvantages of Pre-EMI

1. Extended Interest Payment: The more time taken by your property to be completed, the more you pay as interest.
2. No decrease in the actual loan amount because Pre-EMI does not cover the principal.

Is Pre-EMI Suitable for You?

All this depends on your financial scenario. If you are paying both rent and loan EMIs, then Pre-EMI will be the savior for you. However, if you wish to start reducing the loan principal amount early, then you might prefer to start full EMIs right away.

The Takeaway

A mere stepping stone in the overall process of home loans! It is there to enable things to be manageable once your dream home is underway. Just remember, when it takes longer to make your dream home, interest accumulated in the pre-EMI phase will be more substantial. Always check with your lenders concerning timelines and expenses to plan accordingly!

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