The equated monthly instalment, also called EMI, combines the principal amount and interest rates. The home loan calculator also includes tenure while computing the EMIs. Depending on the loan type, the entire amount does not get disbursed. Only the interest amount gets paid on the amount disbursed in such scenarios, which is called pre-EMI. This works under a home loan . So, if you have taken the loan for the under-construction property, the lender disburses the instalments’ amount.
This gets done based on the stages of construction. Here, the full amount gets disbursed only once the construction completes. Until then, the borrower needs to only pay the interest for the disbursed amount. The actual EMI begins after the pre-EMI phase, i.e., once the construction completes.
Pre-EMI vs Full EMI
Now that we are aware of pre-EMI and regular EMI, the question is what to consider when applying for a home loan. There is nothing right or wrong here. Both pre-EMI and full EMI are suitable for repayment. This, however, depends on the borrower’s repayment capacity and their ability to judge the financial ability.
If you are not sound financially and staying in a rented apartment, then opt for pre-EMI. This way, you only need to pay the interest amount to pay, and it is affordable than full EMI. This way, you pay only the house’s interest amount and rent until possession of the new home. You can find the interest amount using the home loan EMI calculator .
Meanwhile, if you are a financial expert who can earn consistently great returns on small investments, you can opt for the standard EMI process. Here, the significant portion of your EMI goes towards before construction principal amount, and the housing loan gets exhausted sooner. By the time you can claim the possession of the property, a massive portion of the loan gets cleared,and the interest payment is less.
Under full EMI, the loan gets repaid quickly. This is because the EMI calculator for home loan enables you to simultaneously pay the interest and principal amount. The EMI is according to the amount sanctioned, and the interest calculated is only on the approved amount. Hence, the outstanding amount lowers instantly.
On the other hand, the pre-EMI reduces your burden as you only pay the interest amount disbursed to you. Under full EMI, you need to pay more towards the house loan commitment before possession. While under pre-EMI, the payment is lesser than full EMI.
The housing loan EMI calculator considers the following formula for pre-EMI –
[P X r X (1+r) ^ n]/ [(1+r) ^ n-1]
Affording both full EMI and rent might not be easy for an average middle-class person. But pre-EMI makes it easier.
Whether you consider pre-EMI or full EMI, there are no changes on tax deductions. Also, you cannot claim the tax benefits until the property construction completes. Once done, the home loan interest rate before construction gets aggregated and deducted in five instalments from the year the construction completed. Tax exemptions do not apply to the principal amount paid as full EMI during the construction stage.