EMI is a concept that has emerged to make people buy what they wish for without much of waiting. Like a coin has both sides, EMI concept also has both advantages and disadvantages. What you should be aware of is, it is not a free meal but needs a lot of research and understanding while making a choice between Pre-EMI and Full EMI as a mode of home loan repayment.
What is EMI?
EMI or Equated Monthly Instalment is when the borrower starts repaying the principal amount from day one. This means they start chipping away the loan amount leaving a little amount to be repaid after the construction and possession of the property.
- First in the list, it allows you to buy what you wish/desire for.
- It gives you an option to decide the amount you want to pay in EMI and tenure for it
- It helps in reducing the tax burden
- Easy on wallet as you make the payment in parts.
Disadvantages of EMI
- It’s a long-term debt.
- When you calculate the amount you pay to the lender, it is more than the double the value of the property.
- The interest rate keeps changing and you should have a constant check on it.
What is Pre –EMI?
The EMI is comprised of the Principal amount and the interest rate. The Pre-EMI is the interest portion of the disbursed loan amount and is paid until the full dispersal of the loan amount, which in simple words means, paying in portions. Pre-EMI is an option out there for any under-construction property. The loan amount is released according to the stages of completion of the construction. Hence, you need to pay the loan accordingly. Which means the EMI is calculated only on the disbursed loan amount and not on the full loan amount.. In a way, it lowers the burden of the pocket.
For instance, you have taken a loan of amount Rs.20 lakh and Rs.4 lakh is disbursed first as a part of your Pre-EMI scheme then the EMI is calculated on Rs.4 lakh which is considered as interest but not as principal repayment. The actual principal loan repayment starts when the loan amount of Rs.20 lakh is disbursed.
- No need to pay EMI while the property is getting constructed.(If you choose no pre-emi option).
- Customers are free from price appreciation which during construction period can go up to Rs.500 per sq ft. by the end of project completion.
- Boon for salaried people as it doesn’t burn a hole in their pocket
- When a builder wants working capital during the construction process, he offers the no pre-emi scheme, which means it is your market and try to grab a best offer.
- Cross verification is important as the property might be disputed one
- Watch for delayed construction and possession period
- Builder often charges some extra amount of Rs.200-300 per sq.ft.
- Any principal prepaid by a person before he/she gets the possession of the property is not deductible under Income Tax Act. This wipes the benefit of Section 80 C which allows the deduction of a maximum of Rs.1, 50,000 lakh.
Comparative Analysis of Pre-EMI and Full EMI
Both the EMIs have the best to offer and meet different needs of a different section of people. For example, pre-EMI works the best for salaried people or for those who are living in rented apartment so as to manage both the rent and EMI. But at the same time full EMI saves a lot of time and helps to pay off the loan in the defined time period. So, how to decide which scheme will be the best for you?
Here are some key determining factors while choosing either of the two options:
|If you want to get the tax benefits
||If you have low cash flow at the time you decide to buy a house
|If you want to be debt-free early
||If you had taken the property as investment and reselling is an option you look after the completion of the project.
|If the project time-line is too far and if it dealys the repayment of principal loan amount.
||If you are able to invest the difference amount of EMI and pre-EMI , such that the returns are higher and will help you easily to pay the principal amount when the actual loan starts.
|If the active investment doesn’t appear feasible
||If your money has to be used for some other immediate and urgent needs.
Cross-check your need and requirement with the above mentioned points and whichever payment fits better in your pocket, go ahead with that.
You can also consult Loanyantra for your home loan need. Our dedicated team of professionals thoroughly analyse your loan requirement and your financial portfolio before suggesting you an option. Loanyantra is an easy way where you handover us your requirement and we will give the right answer to your query. Get connected with us to know more about our services.
Buying a home was never as easy as it is in the current scenario. With a plethora of builders in the market opening myriads of options to attract the customers, it has become easy for people to buy their dream home. What makes the purchase easier is the various options that are available in the market.
We know that most of the people prefer buying home on EMI, firstly because it is easy on the pocket and secondly, it works as a tax saver. EMIs or Equated Monthly Instalments have become popular enabling even the salaried class to buy a house in early stages of their life which otherwise was not affordable to them.
The recent buzz that has created a spur in the real estate market is the ‘No pre-EMI’ scheme. This scheme is offered by the builders whose projects are under construction. Usually the builders and developers tie up with banks or financial institutions to aid the buyers in their process of buying homes. Under this scheme, the buyer does not have to pay the EMI till the time of possession. Sounds luring, isn’t it? But, wait like every scheme has some conditions apply, this enticing policy too has some pros and cons. Here is a compiled list of advantages and disadvantages of no pre –EMI scheme.
- No Pre EMI loan doesn’t mean not a loan. Most of the times customers get confused thinking that till completion they need not take a loan. Not exactly, prerequisite is customer should be eligible for given loan amount and he need to apply for Home Loan on booking.
- Customer need to have and pay at least 10-20% of the property’s value before opting for No Pre EMI Loan.
- There is no need to pay EMI during the construction period , customer can save the money in the form of a Fixed Deposit or another investment scheme which later can be used to pay the EMIs.
- Customer can be saved against the price appreciation during the construction tenure, which might usually go up atleast Rs. 500 per sqft by the end of the completion of the project.
- For the salaried people, it has come as a boon. they don’t get over-burdened with double payment of EMIs as well as rent of the apartment they are living in.
- Most of the times this offer is given by the builder when he is not able to sell, hence its a buyers market. So try to get the best price.
- Cross-verification of the property is important before investment. Most of the time builders might lure you to buy property that might be disputed.
- In case the time of possession gets extended or there is a delay in construction work, the customer is at a loss. Hence, proper study and verification are important
- Under this scheme builder charge some amount extra which can be around Rs.200-300 per sq. ft.
What You Should Know
Builder normally offers for 18-months or 24-months scheme. Check the completion date and calculate the premium you are paying.
No Pre-EMI will not reduce the loan tenure. In case offer is for ’24-Months No Pre-EMI’ and you have opted for 20 years tenure. Then after 2 years(24 Months) your loan tenure will remain as 20 years. So its advised to save as much as you can during this period to make a part-payment when your actual loan starts.
Know that you cannot file for tax deduction when you are in a No Pre-EMI scheme. Only after you start paying EMI , you can avail for tax deduction.
Word of Caution :
- Check the Rate of Interest when you are in a No Pre-EMI loan.
- Check with the builder till what date or till which construction phase you need not pay EMI. Most of the times builder would say till possession with a term attached till possession or 24 months which ever is earlier. Make sure in case of any promise, ask in writing or an email from an official mail with CC to their higher authority.
- Don’t just enjoy the No Pre EMI honeymoon period. Save as much as you can and make sure you use this saving to pay off certain amount of loan.
Loanyantra comprehends the fact that buying a home is a tough decision which demands a huge sum of money, extra verification to avoid baffling advertisement by the various financial institutions. Hence, we have prepared this forum that will help you understand the nuts and bolts of home loans and schemes related to it. Get connected with us to know more about how we can make you dream of buying home come true.
Is it necessary that the home loan EMI should be more to finish off the loan earlier?
The answer is definitely, yes.
But everything in the world has exceptions. Similarly, the exception for not increasing the EMI can be, either you invest in some thing else worth or you can not afford paying more.
As we know, reducing the EMI will lead to longer tenure.
Before you take the step, ask yourselves.
- Can you bear the EMI for such long tenure?
- Can you finish the loan before you retire?
- Is there any other alternative?
- Is there a proper plan as to what to do with the rest of the extra(to-be-paid for the EMI) money, every month?
- Can you assure that the extra money is invested for a better cause?
The valid reasons for lessening your EMI can b
- Investing where you get better returns when compared with the present scenario.
- Financial crisis.
- Opting for a bigger amount of loan.
If you have a really strong reason and a well planned investment for the increased disposable income, it is a recommended suggestion.