Pre-EMI

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:

1. Pre-EMI Interest = Loan Amount × Monthly Interest Rate

2. Total Pre-EMI Amount = Pre-EMI Interest × Pre-EMI Period (in months)

3. 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:

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: