When it comes to getting your dream home, buying one with personal savings is challenging. Furthermore, the savings amount mostly falls short by a significant margin. Therefore, taking eternal financial aid like a personal or a home loan can solve the matter of funds. These loans can be paid back with the easy Equated Monthly Installments, which you can calculate using a loan EMI calculator. However, earlier, the concept of the EMI was simple, but now there are types.
Pre-EMI and Full EMI are the types you need to know about if you are planning to get a loan. These are two different options available to borrowers while repaying a loan. Both of these options have their own advantages and disadvantages, and choosing between them depends on the individual’s financial situation and goals, how these can impact the course of your loan repayment, and how you can benefit from either option. Read on to learn more.
What is Pre-EMI?
Pre-EMI is a payment made by the borrower under the construction phase of a project when the loan has been disbursed, but the property is not yet ready for possession. This payment is a combination of interest on the loan and a part of the principal amount. Pre-EMI is lower than the full EMI as the borrower is paying only the interest component during the construction phase.
For instance, suppose you have taken a home loan of ₹50 Lakhs at an interest rate of 8% per annum. The loan tenure is 20 years. Now the home will take 3 years to complete and the bank gives you ₹5 Lakhs for that period. The total tenure will be 23 years.
During the pre-EMI period, the interest component of the amount allocated that you have to pay is ₹3,000 per month. Using the home loan EMI calculator from here, you can compute the EMI. Furthermore, with the amortized loan schedule, you can get the sum difference of the interest amount.
What is Full EMI?
On the other hand, a Full EMI is a complete payment that includes both the interest and the principal amount. Full EMI starts from the date of possession of the property and continues until the loan is fully repaid. Full EMI is higher than Pre-EMI as the borrower is paying both the interest and the principal components of the loan.
For instance, suppose you have taken a home loan of ₹50 Lakhs at an interest rate of 8% per annum. The loan tenure is 20 years.
With the full-EMI period, you have to pay both the interest component and principal amount of the loan, which comes to ₹41,822 per month. Here at calculatoremi.com, you can use the instant and accurate home loan EMI calculator to evaluate the EMI.
Furthermore, here you can find other loan-specific calculators as well. Additionally, if you are taking HDFC Home Loan, there is HDFC Home Loan EMI Calculator.
What Are The Differences Between Pre-EMI and Full-EMI?
The following are a few points of differentiation between Pre EMI and Full EMI. With them, you can better understand which is good for you.
- Loan Disbursal: When you choose full EMI, you can seek allocation of the entire loan amount. Comparatively, with pre-EMI, the loan amount is disbursed partially.
- Loan Repayment: The EMI amount or the loan repayment amount you pay in the beginning is significantly lower in the case of pre-EMIs. In terms of full EMI, you have to repay the full EMI amount irrespective of the allotted loan amount.
- Interest Rate: With full EMI, interest rates are calculated by observing the entire principal amount. Pre-EMI interest rate is enumerated in fulfillment of the disbursed loan amounts.
Tax Benefits On Pre-EMI And Full EMI
You receive the same tax benefits whether you pay off your debt in full or in pre-EMI installments. Furthermore, you cannot claim a tax benefit on the interest you pay back through pre-EMI during construction. However, the interest you pay back in pre-EMI will be combined and taken into account for a tax deduction in five equal payments once you receive the possession certificate. According to Section 24 of the Indian Income Tax Act that governs the tax deductions for house loan interest, a borrower can obtain a deduction of up to Rs. 2 lakhs in a financial year.
Bottom Line
So, which one is better? It depends on the borrower’s financial situation and goals. If the borrower has a high monthly income and wants to reduce the total interest payable on the loan, they may opt for Full EMI. This way, they can reduce the interest component by paying a higher amount of EMI. However, if the borrower has a low monthly income or a limited budget, they may opt for Pre-EMI as it is lower and more affordable.
Additionally, if the borrower wants to reduce their financial burden during construction, they may opt for Pre-EMI. It will give them time to adjust to the higher EMI payments when the property is ready for possession and the full EMI starts.
In conclusion, Pre-EMI and Full EMI have advantages and disadvantages. The decision between these two options depends on the borrower’s financial situation and goals. Borrowers should consider their monthly income, budget, and financial goals before choosing between Pre-EMI and Full EMI. It is recommended to consult a financial advisor to determine the best option for your specific situation.
Visit Here :- What Will Be The EMI For 1 Lakh
