What is the difference Between Pre-EMI and Full EMI?

The housing loan comes up with several unknown terms, fees and hidden charges which we may not know. It will be necessary for the borrower to thoroughly check these charges before proceeding with the loan. Though for different types of home loan, different charges apply.

One such term which is associated with the home loan is Pre - EMI. Let's understand how different it is from the full equated monthly instalments (EMI).

What is the difference Between Pre-EMI and Full EMI?

What is Pre - EMI?

The term Pre - EMI refers to the payment of the interest amount applicable on the loan by the borrower to the lender and this will be paid when the house is still under construction phase. The Pre - EMI will end once the building construction gets completed.

Generally, the Pre - EMI amount will be less compared to the full EMI (includes principal amount + interest on the loan). When a borrower is paying Pre - EMI to the bank, they will be repaying only the interest portion of the loan and the principal part of the home loan and the tenure will stay intact. Hence pre - EMI payment period is not a part of the loan tenure.

For Example: If Mr Ganesha has taken a home loan of Rs 20 lakh for house construction for 15 years and the construction of the house takes 2 years for completion. During the phase of house construction, Mr Ganesha wishes to pay Pre - EMI.

After the completion of construction of the house (2 years), his pre - EMI payment comes to an end and full EMI repayment period will commence. So, the total loan period will be 2 years of pre - EMI period + 15 years of full - EMI repayment period = 17 years.

What is EMI?

The term EMI refers to the Equated Monthly Installments. An EMI is the fixed payment amount made by the borrower to the lender for the specified period. The EMI consists of both the principal loan value as well as the interest on the loan which will be spread over several years till the loan repayment is completed in full.

EMI has to be paid by the lender on a specified date of every month.

Commencement of payment of full EMI begins after the completion of the house construction for which loan has been approved for.

Let's understand What is the difference Between Pre-EMI and Full EMI?

Difference Between Pre – EMI and Full EMI

Interest Rate

Interest Rate of Pre - EMI will be compounded based on the loan amount disbursed to the builder. Whereas interest in Full EMI will be calculated based on the principal loan amount.

Difference Between Pre – EMI and Full EMI

Loan Disbursal

Pre - EMI is opted for when the total loan amount is disbursed in parts (usually done if the loan is taken for house construction, based on the stages of construction). Whereas in the case of Full EMI, the loan amount will be disbursed at one time.

Difference Between Pre – EMI and Full EMI

Payment of Equated Monthly Installments (EMI)

In the case of Pre - EMI, the monthly payments will start beginning from the construction period. Whereas in the case of Full EMI, the EMI payment will start only after construction and possession of the property.

Calculation of Interest Rate

Under Pre - EMI, the interest rate will be compounded based on the total loan amount disbursed to the builder. Whereas in the case of Full EMI, the interest rate will be computed based on the principal value of the loan amount.

Difference Between Pre – EMI and Full EMI

Loan Repayment Period

In case of Pre - EMI option, the loan amount which will be repaid will be only restricted to the interest amount and the principal amount will remain intact (only interest amount can be repaid), hence the total number of loan period will be more. But in case of Full EMI, the repayment will cover a large portion of the principal amount along with interest charges and hence loan tenure will be comparatively less.

Difference Between Pre – EMI and Full EMI

Effect on Finance

Repaying Pre - EMI is easier on pockets as only interest amount on loan value will be paid during the pre-construction period.

Whereas repaying Full EMI, will most likely be a tough thing for the borrower as it will include both principal amount and interest on the loan. The interest amount will be higher in the begging of the repayment period and will taper down gradually over the loan tenure. The principal amount will be less initially, as compared to interest amount and it will increase gradually over a while until the loan amount is repaid completely.

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