Pre-EMI vs full EMI: What should you choose?

One of the most commonly used financial options by people when buying a house is a home loan. These are offered by both banks and non-banking financial companies (NBFCs). While applying for a home loan, one should also be aware of the two options available for repaying the house loan- pre-EMI payment and full EMI payment. In this guide, we compare in detail both the methods available so that you can take an informed decision when you avail a home loan.

Table of Contents

What is pre-EMI repayment?

This option is available for an under-construction property. In the pre-EMI repayment method, a home loan borrower has to pay only the interest component of the amount that is disbursed as home loan. Once the property is constructed completely and is ready for possession, the lender will ask for full-EMI payment. Note that pre-EMI is not considered as part of the home loan tenor. The principal component repayment of the EMI starts when the property is constructed completely and is ready for possession. Since a home loan borrower doesn’t pay the principal initially, pre-EMI repayments are lesser as compared to Full EMI repayments.

What is full EMI repayment?

This option is available for ready possession properties. In the full-EMI repayment method, a home loan borrower has to pay both principal and interest component of the amount that is disbursed as home loan from the beginning. The EMI remains unchanged throughout the loan tenure. Note that some NBFCs allow you to pay full EMI even during the under-construction phase of the property.

Pre-EMI vs full EMI repayment

	Pre-EMI	Full-EMI
Loan disbursal	This is a better option when the loan amount is disbursed in parts.	This option suits people when the loan amount is disbursed all at once.
Initial EMI	Initially EMI amount is less as only interest component of the loan.	The initial EMI amount is more as repayments include both interest and principal components.
Calculation of interest	The interest of pre-EMI repayment is compounded depending on the loan disbursed to the builder.	The interest for the full-EMI repayment option depends on the principal loan amount
Money spent in the long-run	This is costly in the long-run as one doesn’t pay the principal component initially. Interest on home loans is being paid for an extended period of time.	As you start paying principal right from the time the home loan is disbursed, the overall interest that has to be paid becomes less, making it a cost-effective option.
Loan tenure	Since you first pay interest and then pay the Full EMI (principal plus interest), the tenure of the loan is longer.	Since you pay principal and interest simultaneously the loan tenure will be comparatively shorter.
Timing of cash flow	Initially cash flow is less. This gives you respite financially at that time. Since you don’t have to pay everything together as soon as the home loan is disbursed.	Cash flow is on the higher side and so if you have other big expenses planned simultaneously, this may pinch your pocket. However, by doing this, loan repayment is faster.
Impact on total cost of the property	Since this involves paying interest first and the full EMI and the longer tenure of repayment, the total cost of property will be more in the end.	Since this involves paying both interest and principal at the same time, the loan tenure is shorter and since the loan amount doesn’t change, the property cost will be comparatively less.
Tax exemption	Under section 24 (b), tax benefits can be claimed on the interest component of the Pre-EMI payments. Note that one can’t get tax benefits on the principal repayment done during the construction period, since tax deductions on home loans. Interest cannot be availed until construction is complete.	Tax benefits can be claimed on both the interest and the principal components of Full EMI payments. (in case of ready possession)
Risks involved	In case of a delay in the project due to construction, the home loan repayment tenure may get extended. This may lead to the total property getting expensive unnecessarily.	As you start repaying both the interest and principal from the time the loan is disbursed, there is less risk of the project getting stalled because of construction delays.
Property resale	If the pre-EMI repayment is opted, one can sell the property immediately or after a few years of project completion.	One cannot sell the property until a set period of time.

How to choose between pre-EMI or full EMI repayment?

While choosing between pre-EMI and full EMI repayment options, you have to first consider your present financial strength and how much risk you can take.

Pre-EMI repayment plan is the best fit if:

You need to ensure that you are effectively using your finances when the property you have invested in is under-construction.
You want to take a loan for a longer period of time and pay higher interest because this will ensure that you won’t be having financial burden presently.
You are sure that the project will be constructed and ready for possession on time and there won’t be any risk of extended pre-EMI payments.
This is a good option if you are expecting a bonus or a raise.

Full-EMI repayment plan is the best fit if:

You are financially secure and can manage higher EMI repayment from the beginning.
You want a shorter loan tenure
You want a reduced overall interest cost and reduced payments done towards interest on the home loan taken.
In case you sense a delay in construction, opt for Full- EMI.

Housing.com POV

The two types of home loan repayment have their advantages and disadvantages. Think and decide which options align with your financial goals. It’s a good idea to do self-calculations using a home loan EMI calculator and further take a second opinion from a financial advisor as the decision that you will take will have an impact on the total cost of your property.

FAQs

When does pre-EMI start?

Pre-EMI starts as soon as the first disbursement is made by the bank for the home loan.

Can pre-EMI be converted to full EMI?

Yes. Once the full home loan is disbursed for a property, the pre-EMI gets converted into a full-EMI that includes both principal and interest.

Is pre-EMI interest refundable?

No. Since pre-EMI repayment consists of the interest part, they are not refundable.

Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com

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