Pre and Full EMI in Home Loan - Which Is a Better Option?

25 MAY, 2021

There has been a massive price hike in the real estate sector in recent times. Property rates have increased by an average 38% across seven major cities over the last decade. As a result of this, home loans have become a popular financing option for purchasing properties. The loan amount can be repaid in affordable EMIs over the tenure that suits you the best. As a well-informed borrower, you must also learn about Pre-EMI and Full-EMI, and choose wisely between the two. It will help you manage your financial resources in a much better way.

Read on to know more.

What Is Pre-EMI?
Pre-EMI refers to the monthly instalment that is paid only towards the interest component of the home loan. It is to be noted that with Pre-EMI, you won’t be repaying anything towards the principal amount.

You can opt to pay Pre-EMIs when your house is under construction. Once the construction of the house is completed, you will be required to pay the EMIs in full. Opting for Pre-EMI will reduce the repayment burden of your home loan. However, it is to be noted that the Pre-EMI payments won’t be considered as a part of your loan tenure. The tenure of the loan will be calculated from the time you start paying EMIs in full.

When Is Pre-EMI Ideal?

• A Pre-EMI can be ideal when you have to pay house rent as well service your home loan.
• Since the amount in case of Pre-EMI payment is lesser as compared to Full-EMI, you can manage the cash flow better and invest the amount saved to generate short-term revenues or for other purposes or make a higher down payment
• Opt for a Pre-EMI payment if you wish to sell the property after the completion of its construction.

Here’s an example that will help you understand Pre-EMI in a better way:

Let’s assume you avail a home loan of Rs50 lakh at an interest rate of 8.5% p.a. for a period of 20 years to purchase an under-construction property. The construction will be completed in 2 years, during which you choose to pay pre-EMI. On completion of the property, the Pre-EMI payment ends, and regular EMI repayment period commences. Thus, the total home loan tenure would be 2 years (pre-EMI period) + 20 years (loan tenure) = 22 years.

For a home loan of Rs 50 lakhs, if you opt for a disbursement tranche of 5 lakhs, your Pre-EMI will be Rs. (5 lakhs x 8.5%/12) = Rs. 3,542. In case you take another disbursement of Rs 10 lakhs after 6 months, your EMI will increase to Rs 10,625 (Rs 15 lacs x 8.5% /12). It must be noted that in case of Pre-EMI, the entire amount paid will go towards the interest payment and not the principal repayment.

What Is Full-EMI?
Full-EMI refers to a regular home loan EMI that is paid towards the interest as well as the principal amount of the home loan. If you have opted for a Pre-EMI, the payment of Full-EMI begins only when the construction of the property is completed. You can also opt for a Full-EMI right from the beginning, regardless of the construction and possession of the property.

When Is Full-EMI Ideal?

• If you wish to repay the home loan sooner, it is a good choice to opt for a Full-EMI right from the beginning of the home loan tenure, even if the home possession is some time away.
• If you want to save on interest pay-out over the long term, a Full-EMI is advisable and should be preferred.
• Opting for Full-EMIs is better than Pre-EMIs, if your financial situation and cash flow allows you to do that.

Let’s understand Full-EMI with the help of an Example:

Suppose you have taken a home loan of Rs. 50 lakhs for an under-construction property. You have opted for a Full-EMI hence you pay EMI on entire loan amount of Rs 50 lakh. At a rate of 8.5% p.a., the Full-EMI for a loan of Rs 50 lakh for 20 years will be Rs 43,391. By paying Full-EMI, you will be able to pay off your home loan sooner.

Difference Between Pre-EMI and Full EMI.

Loan disbursal: The Full-EMI option is usually chosen when the loan amount is disbursed at one go. However, you can opt for part disbursement too. On the other hand, the Pre-EMI option is preferred when the total loan is disbursed in parts.

Interest rate calculation: The interest rate for Pre-EMI is calculated based on the loan amount disbursed, whereas in case of Full-EMI option, the interest rate is calculated based on the principal loan amount.

Loan tenure: Since you will be paying a higher monthly instalment in case of a Full-EMI, the loan will be paid off sooner as compared to the Pre-EMI option.

Now that you are well-versed with the nuances of Pre-EMI and Full-EMI, ensure to make a well-informed decision while choosing between these two options. Regardless of whether you choose Pre-EMI or Full-EMI, you must make timely payment of your monthly instalments. Evaluate your repayment capacity carefully before deciding on the EMI amount. To get the EMI estimate, use a home loan EMI calculator. Also, make sure to check your loan eligibility using the home loan eligibility calculator.