When you’re buying a home, there are a lot of different expenses to consider. One of the most important is your monthly mortgage payment. When you take out a loan, you typically need to make two monthly payments – the EMI and the pre-EMI. But what’s the difference between them? And which should you be paying attention to? This blog post will summarize everything you need to know about EMI and pre-EMI payments. Let’s get started.
What is a pre-EMI in a home loan?
Pre-EMIs are payments made during the construction phase of your housing loan before the full loan amount has been disbursed. These payments are interest-only installments, meaning only the interest component is paid during this period. The principal amount remains unchanged. Once EMI repayments begin, the pre-EMI amount will be included in your EMIs.
What is a full EMI in a home loan?
Once your home’s construction and total loan amount have been disbursed, you will start paying regular EMIs. These EMIs will consist of both the interest and principal components. The interest component will be based on the outstanding loan amount, while the main element will be a fixed amount. Together, these two components make up your total EMI payment for the month.
Full EMI vs. Pre-EMI: Difference explained
1. Timing of payment:
You start paying EMIs only after your loan has been disbursed. However, you begin paying pre-EMIs in the first month after obtaining a home loan.
2. Amount of payment:
The EMI amount remains constant throughout the loan tenure, whereas the pre-EMI amount decreases monthly as your outstanding loan principal reduces.
3. Impact on tax liability:
The interest on your home loan EMI is entitled to tax deduction under Section 80C of the Income Tax Act. However, no such benefit is available for pre-EMIs.
4. Effect on loan eligibility:
Your home loan eligibility is calculated based on your monthly EMIs. Therefore, a higher EMI would mean a lower loan amount eligibility. On the other hand, since pre-EMIs are not included in this calculation, they do not affect your eligibility. You can use a home loan EMI calculator before you apply for a home loan to know your eligibility better.
5. Nature of payment:
The full EMI comprises both the principal and interest components. The pre-EMI, on the other hand, is only the interest component.
6. Calculation of interest rate:
The pre-EMI interest is based on the loan amount disbursed to the builder. On the other hand, the full-EMI interest is calculated based on the principal loan amount.
To sum it up, if you plan to take out a home loan, you must know the difference between EMIs (equated monthly installments) and pre-EMIs. Both are types of repayments that you will have to make, but they differ in terms of when they are due and how much interest is charged. By understanding the benefits of each, you can save money on your housing loan and get into your new home sooner.