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Pre-EMI refers to the monthly interest payments made on a home loan while the property is under construction. Since these payments cover only the interest and not the principal amount, they are lower than regular EMIs.
The pre-EMI period continues until the construction is complete. Once the house is ready, regular EMI payments begin, and the official loan tenure starts. It is a suitable option for homebuyers who want to reduce their financial burden during the construction phase.
Pre-EMI offers flexibility in home loan repayments, especially during the construction phase. It helps reduce the financial burden while giving you time to plan for future EMIs. Some other benefits are mentioned below:
Pre-EMI Tax Benefit
Claim tax deductions on interest paid during construction in five equal instalments after possession, up to ₹2 Lakhs per year, under Section 24(b).
Lower EMIs
Pay only the interest on the disbursed loan amount, leading to smaller monthly payments during construction.
Reduced Financial Burden
Ideal for homebuyers paying rent, as it eases the load by delaying full EMIs until the property is ready.
You can choose pre-EMI in the following situations:
When you have a tight budget and need to manage house rent as well as loan payments
When you intend to sell the property within a few years of its completion
If you plan to sell the property soon after construction is completed
If you want to invest the money saved from lower pre-EMIs to earn better returns
When you need urgent funds but do not want the pressure of full EMI payments right away
Pre-EMI is calculated based on the interest charged on the disbursed loan amount during the construction phase. Here's a simple method to calculate pre-EMI, along with an example:
Pre-EMI Calculation’s Formula:
Pre-EMI Interest = Loan Amount × Monthly Interest Rate
Total Pre-EMI Amount = Pre-EMI Interest × Pre-EMI Period (in months)
Total Repayment = Loan Amount + Total Pre-EMI Amount
For example, you take a loan of ₹20 Lakhs at an annual interest rate of 10% for a pre-EMI period of 4 months. Here is the calculation:
| Parameters | Details |
|---|---|
Loan Amount (Principal) |
₹20,00,000 |
Annual Interest Rate |
10% |
Monthly Interest Rate |
10% ÷ 12 = 0.83% (0.0083) |
Pre-EMI Period |
4 months |
Pre-EMI Interest per Month |
₹20,00,000 × 0.0083 = ₹16,600 |
Total Pre-EMI Amount |
₹1,660 × 4 = ₹66,400 |
Total Repayment Amount |
₹20,00,000 + ₹6,640 = ₹20,66,400 |
In this case, you will pay ₹66,400 as interest over 4 months. After the pre-EMI period ends, regular EMIs will begin.
Here are the key differences between pre-EMI and full-EMI:
| Factors | Pre-EMI | Full-EMI |
|---|---|---|
Loan Disbursal |
A loan is disbursed in instalments as construction progresses. |
The entire loan amount is disbursed at once. |
Interest Calculation |
Interest is charged only on the disbursed amount. |
Interest is charged on the total loan amount. |
Repayment Period |
Loan repayment starts after construction is complete. |
Repayment starts immediately, leading to faster loan closure. |
Principal Amount |
Only interest is paid during the pre-EMI period, with no impact on principal or tenure. |
Both principal and interest are paid, reducing the loan balance over time. |
Right to Sell the Property |
Can sell after construction or even during the construction phase. |
Limited ability to sell the property before completion. |
Pre-EMI can be a good option if you want lower initial payments while managing rent but it increases the total cost of the loan. This option allows you to manage your financial resources better as compared to a full-EMI option.
It only covers interest, so the loan balance remains the same during the construction period. This delays principal repayment and can lead to higher overall interest costs.
The interest on pre-EMIs is the amount charged only on the disbursed loan during the construction phase, which you need to pay until regular EMI payments start.
You can claim a pre-EMI interest deduction under the old tax regime if your property falls under the self-occupied category.
Yes, you can switch from pre-EMI to full-EMI by informing your lender. The switch can happen after construction is completed or even during construction, depending on the lender’s policy.
Suppose you take a home loan of ₹50 Lakhs at 8% interest, but the bank disburses ₹20 Lakhs for the under-construction property. You will pay interest only on ₹20 Lakhs as pre-EMI until the entire loan is disbursed and the construction is complete.
No pre-EMI means you don’t have to pay any interest during the construction phase. EMI payments start only after the property is completed and handed over.
Yes, you can claim tax benefits on the pre-EMI interest under Section 24(b), after the construction is complete. However, no tax benefits are available on the principal repayment during the construction phase.
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