If you buy a home loan-especially for an under-construction property-you will often see two important terms mentioned: Pre EMI and Full EMI. Both have to do with the way you repay your loan; however, the very nature of their operations differs on their financial planning. Thus, in this blog, we describe what Pre EMI and Full EMI mean, their differences, and how to calculate them for intelligent decision-making based on your budget and goals.
What is EMI?
EMI is the abbreviation for Equated Monthly Instalment. It is the prescribed quantity of money that the borrower settles each month with the bank or financial institution towards loan repayment. An EMI has two parts: the principal quantity (the quantity of the loan you will be repaying) and the interest (the amount charged by the lender for providing the loan). The EMI is constant throughout the loan duration, but the proportion of principal to interest varies across time.
What is Pre EMI?
Pre EMI means interest that has to be paid only on the disbursed amount of the loan for an under-construction property during the construction period. While taking home loans for projects still under construction, the full amount is not disbursed to an applicant all at once; the disbursal is in stages depending upon the progress in construction of the building. During this time, you would put your money into Pre-EMIs, which means interest only on the disbursed amount, instead of a full EMI.
Pre-EMI keeps on continuing until the full loan amount is disbursed and the property is ready for possession. The moment the last installment is disbursed and the construction is finished, normal direct Full EMI comprising sitting principal plus interest would start.
The most essential factor about Pre-EMI is that it offers the advantage of lower monthly outflows during the construction phase. But in delaying principal repayment, it may enhance overall interest that is payable.
What is Full EMI?
Full EMI means a regular EMI made up of the full principal and interest components. Full EMI starts once you seriously start repaying your home loan whenever that discharge is either partial or full. It is usually preferred by the borrower eager to get rid of his loan burden early and save on total interest outgo.
Although such a view expects Full EMI to be greater-which it is, especially if your house is under construction-for the long-term thought free bar, which integrates the concept of payback of principal from day one itself.
Difference Between Pre EMI and Full EMI
The main difference between Pre EMI and Full EMI depends on how much one pays and when they pay. Under Pre EMI, one is supposed to pay only the interest on the amount disbursed on the loan, thereby having lesser payments in the initial years. Full EMI entails higher payments as they include interest and principal, but it helps in reducing the loan amount from day one.
Pre EMI suits buyers who prefer lower monthly outgo during construction. Full EMI is preferred by those who can afford the higher payments and want to save on interest in totality.
Which Option Should You Choose?
Your choice between Pre EMI and Full EMI should depend on your financial situation and future plans.
Choose Pre EMI if:
- You are purchasing an under-construction asset.
- You want to minimize your cash outflow during construction.
- You expect your income to increase shortly after.
Choose Full EMI if:
- You can afford higher payments from the beginning.
- You want to pay off your principal immediately.
- You want to save money on interest.
Final Thoughts
Executing a house loan is a big-ticket decision, and choosing between a Pre-EMI and Full-EMI is one of those. Pre EMI gives you some breathing space during the construction phase, but it might end up costing you more interest in the long run. Full EMI would require you to pay more upfront, but it is better for reducing your overall loan burden with time.
Evaluate your current financial status, your expected future income, and the nature of your property before deciding which EMI option is best for you.