Most buyers finance their new home through a home loan as it is the most affordable way of purchasing a property. A home loan repayment plan can be structured in many different ways. Finding a lender with a minimal interest rate is of utmost significance.
There are two vital options that one needs to understand also – choosing wisely between pre-EMIs and EMIs. These are ways of repaying the loan amount to help you manage your funds better while your dream home is being constructed. However, each of them can affect your repayment capacity differently. Let’s understand what both these options entail and which is more beneficial under what circumstance.
Equated Monthly Instalments (EMIs) are the regular home loan repayment paid by you every month for a selected period of time. This includes both the interest and principal. In case you have taken the Pre-EMI option, the full-fledged EMI payment starts when the property is completed.
Pre-EMIs are the monthly payments that a home buyer decides to make on the home loan’s interest component. This option is given when the property is under construction and is offered by the developer under Construction Linked Plan. It is essentially the reduced payment you make as it does not include the loan’s principal component. It is not taken to be a part of the home loan tenure but is designed to reduce the payment burden when the asset is under development.
Both options enjoy the same tax benefits since tax deduction is not applicable when the property is under construction. Only once the borrower gets the possession certificate, the amount of interest paid in both options is aggregated and considered for a tax deduction in five equal instalments.
EMIs and pre-EMIs are financial decisions that you, as a buyer, need to take, keeping in mind the existing market conditions, your income and expenditure, and the resale value of the project. Now with absolute clarity on pre-EMI and EMI, you can make an informed decision on how to repay the home loan when you buy your new home. Remember, invest smart and repay smarter!