One of the most important choices you’ll have to make when taking out a home loan is whether to choose Pre EMI vs Full EMI. Your entire loan experience and financial planning may be greatly impacted by this decision. This thorough guide will assist you in comprehending the distinctions, advantages, and ramifications between Pre-EMI and Full-EMI.
Pre EMI vs Full EMI | Definition
What is Pre EMI?
Home loan borrowers who opt for Pre-EMI can pay back their debts before construction begins. This method only charges interest on the amount of the house loan that the bank actually disburses to you. When the construction is complete and the property is prepared for occupancy, the principal repayment schedule begins. Pre-EMI payments are usually less than full EMI payments because you are not repaying the principal amount.
What is Full EMI?
As the name implies, full EMI entails paying the principal and interest on the home loan from the beginning. With this repayment plan, you begin paying back the full loan amount as soon as it is disbursed, and are only applicable to properties that are ready for possession. Throughout the loan, the EMI amount doesn’t change.
Differences between Pre EMI vs Full EMI
- The difference in loan disbursal: The loan amount is partially disbursed if you choose pre-EMI, but you can request disbursement of the entire loan amount if you choose full EMI.
- The difference in loan repayment: When comparing pre-EMIs to full-EMI, where you must pay the entire EMI amount regardless of the loan amount disbursed, the initial EMI amount is substantially lower.
- Difference in interest rate: Interest rates for full amortized loans (REMI) are determined using the total principal amount. The pre-EMI interest rate is determined based on the loan amounts that have been disbursed.
Advantages of Pre-EMI
- Lower Initial Outflow: Pre-EMI has smaller initial payments than Full EMI, which makes it easier for borrowers to manage their money while building.
- Tax Benefits: Under Section 24(b) of the Income Tax Act of 1961, you are eligible to receive tax benefits on the interest component of the pre-EMI.
- Flexibility: Pre-EMI allows you to defer paying the entire EMI until the property is ready for occupancy.
Advantages of Full EMI
- Faster Loan Repayment: The loan is repaid faster than Pre EMI because interest and principal are due at the same time.
- Lower Overall Interest: Throughout the loan, Full EMI pays less interest than Pre EMI.
- Better Financial Planning: With a fixed Full EMI, borrowers can more efficiently plan their monthly spending.
Which repayment option is better for you?
Choose Pre-EMI if: To stay financially stable during construction, you must effectively manage your cash flow. To alleviate your immediate financial situation, you are willing to pay slightly higher interest rates and accept a longer loan term. You are confident that the project will be completed within the time frame specified, reducing the likelihood of having to make additional pre-EMI payments.
Choose Full EMI If: To achieve faster loan repayment and lower interest payments, you want to minimise the total cost of interest and shorten the loan term. Higher EMI payments are something you can easily manage right away without putting a strain on your finances. You would prefer a shorter loan term so that you can pay off your debt more quickly and enjoy greater financial freedom.
There are benefits and drawbacks to both the pre-EMI and full EMI repayment options. Your decision should be in line with your cash flow needs and financial objectives. Before making a choice, you must carefully evaluate your financial status and speak with your lender or financial advisor. Remember that your decision may affect the overall cost of your home purchase as well as your experience with home loans in general.
Conclusion
Both pre-EMI and full-EMI repayment plans have pros and cons. Align your decision with your cash flow requirements and financial objectives. Consider your financial situation and consult with your lender or financial advisor before deciding. Remember, your choice may affect the total cost of your home purchase and your overall home loan experience.