Home Loans-Meaning of EMI, Pre-EMI and Pre-Construction Period.

It is everybody’s dream to have their own home. To fulfill this dream, home loan is a tool which will be handy in making your dream into reality. But before taking loan it is better if you have some knowledge about the meanings of EMI, Pre-EMI and Pre-Construction Period. Let us have look into each of them in detail.

1) EMI-EMI stands for Equated Monthly Installment. Suppose you took loan for Rs.50,00,000 and tenure being 20 years with interest rate 11%. Then your EMI will be Rs.51,609.  But in allmost all cases you will not need whole loan amount immediately as construction will take 2 to 3 years. During this period you need partial amounts of your total loan amount throughout this construction period. In that case in EMI type of loans, without bothering about the construction period, you continue to pay the principal and interest. This option holds good to reduce your future loan commitment as you start immediate re-payment which includes Princiapl+Interest. But you will not get the tax benefit until your Pre-Construction period is over.

2) Pre-EMI-It is the monthly interest payment what you need to pay on the amount you withdrawn from the loan amount during construction period. Remember in such type of re-payments, you are paying only interest part and Principal part will start after the full disbursement of loan amount. To make it clear, let us have a example.

Suppose Mr.X took loan for Rs.50,00,000 for the tenure of 20 years and interest rate being 11%. But he dont want the whole Rs.50,00,000 immediately. Instead he want to withdraw the loan amount in part depending on his construction needs. In that case suppose he took Rs.10,00,000 today and next installments after completion of each 6 months. Then interest EMI he need to pay is as below.

A) First withdrawal-Loan Amount Rs.10,00,000 Interest-11%  then you need to pay Rs.9,166 as EMI. But this payment consists of only interest part not principal.

B) Second Withdrawal-Loan Amount Rs.10,00,000 Interest-11% then you again need to pay Rs.9,166 as EMI. So after 6 months of your first withdrawal you are paying Rs. 18,332 (Rs.9,166+Rs.9,166) as EMI towards interest from both the withdrawals you made.

Like that for each partial withdrawal from loan amount you start to pay only interest part till your loan amount fully disbursed. But here also you will not get any tax benefit till the Pre-Construction period is over. This looks pretty good when you compare with first option of repayment (EMI), where you start to pay Principal+Interest from the immediate next month of your loan disbursement. Pre-EMI option holds good for people who are currently having more personal financial commitments and are of the opinion that at the stage of completion of Pre-Construction period their income may raise and they are in a better position to pay EMI (Principal+Interest). Reverse may also happen, as the time passes you may build up more financial commitments. Hence it is better to analyze and decide yourself.

3) Pre-Construction Period-It is the period commencing from on the date of borrowing and ending on a) March 31st of immediately prior to the date of completion of construction/date of acquisition or b) date of repayment of loan, whichever is earlier.

To have more clarity, let us have example. Suppose Mr.X took the loan on June 10, 2005 and the construction of the house completed on January 2011. Date of repyament of loan is a) January 16, 2016, or b) June 30, 2012, or c) October 31, 2008

Suppose loan repayment is January 16, 2016 or June 30, 2012, then pre-construction period ends on March 31, 2010 (being March 31, 2010 immediately prior to the date of completion of construction/acquisition).

Suppose loan repayment is October 31, 2008 then pre-construction period ends on October 31, 2008 (being March 31st, immediately prior to completion of construction date of repayment of loan, whichever is earlier).

During this period whatever you pay as interest and principal will totally added and claim for tax deduction in five equal annual installments, commencing from the year of completion of house.

Hope I elaborated meanings in a better way.

33 Comments

  1. Hello,

    I have query for Home Loan disbursement against a ready to move in property.

    I have a home loan sanctioned. I want the possession of the property as well. I have paid my share of amount to the builder as well. Now to get possession, builder will have to get 100% amount (Which is equal to the sanctioned loan).
    I was planning to get property registered and thus get 100% disbursement from bank. But Punjab Govt has reduced the Stamp Duty from 9% to 6% now, though the notification is not received yet in concerned departments. Due to this i have to delay the registration for few days.
    If i have to delay the registration, bank can disburse 95% of sanctioned amount now and they will hold 5% with them. If i pay this 5% directly to builder from my personal funds (and thus get the possession), :
    1. will the bank repay “me” after i provide them the registry?
    2. Or they will pay only to builder, if so can i cancel this transaction and ask them that i am ok with 95% disbursement?

    Reply
    • Ravi-It is purely a procedural issue. Better you check with bank.

      Reply
      • Thanks

        Reply
  2. We are booking a flat of 78 lakhs, which is under construction and shall be handed over by August 2019. I have got a loan sanctioned of Rs 60 lakhs on for the falt on my joint name with spouse for 20yrs with an EMI of 56 k. The 60 lakhs loan has to be used in 5 installment by me as in April 16, Oct 2016, Oct 17, April 18 and April 2019.

    1) Is tax benefit available for both since April 2016 onward on interest part?
    2) I would pay 56 K EMI from May 2016 onward but suppose I avail only 50% loan i.e. 30 lakhs by 2019 rest I manage from my savings, then how much EMI I have to pay after 2019?
    3) Is we both eligible for first home tax benefit(2.5 lakh interest) of 40 lakhs ceiling ?

    Reply
    • Utkarsh-1) Tax benefits will be available only after the pre-construction period is over.
      2) That you have to check with lender.
      3) YES. But proportionate to ownership on property.

      Reply
      • Dear Sir,
        Thanks
        a) Please clarify ‘pre-construction period’ in my case. EMI starts from April 2016 onward after 1st installment of loan, Construction will start in August 2016, then then 4 installment at various stage, likely completion date of construction in August 2019

        b) I am taking SBI MAXGAIN loan 60 lakh for 20 yrs – IN FIRST YEAR:: first year only 12 lakh loan taken @9.5%, but EMI payment is 56*12= 6.72 lakh (~1.22 Lakh interest +0.5 lakh (principal assume) + 5.0 lakh (liquid/ excess))
        now 1) what is the rate of interest on 5.0 excess/liquid amount, I paid
        2) Am I not eligible tax benefit for 1.22 lakh interest during f/y 2016-17?

        Kindly clarify
        thanks and regards
        utkarsh

        Reply
        • Moreover this government housing scheme for govt employees

          Reply
        • Utkarsh-a) It will be from April 2016.
          b) 1) It is your home loan interest rate. 2) NO. Because house is under construction.

          Reply
  3. Hello Basu Sir

    I have taken under construction property. My Home Loan sanctioned is 3500000 with SBI.

    My first disbursement is 1200000 Rd in April 2016. I have opted EMI option.

    Here My Emi would be on total value of sanctioned loan ( I.e{ Pricipal Amount + (3500000*9.55)/100 } or it would be on disbursed amount ( I.e {Principal Amount + (1200000*9.55)/100}?

    Would my EMI would be fixed or it depends upon Disbursed amount?

    Please Reply.

    Regards
    Amit

    Reply
    • Alap-This Pre-EMI constitute only interest part on your withdrawn amount but not on total sanctioned amount.

      Reply
      • Hello Sir

        Thank You For Your Reply.

        But I am not subscribed to Pre-Emi. Instead I have subscribed on EMI scheme from very first installment. So in this case what would be my first EMI.

        Is it calculates as above.

        Is it called Trenched EMI?

        Regards
        Alap

        Reply
        • Alap-In tranche EMI, your principal and interest part of will be only for the disbursed amount but not the overall sanctioned amount.

          Reply
          • Respected Sir

            My loan has been sanctioned by both SBI and HDFC.

            According to U which one I should select to go with?

            Reply
            • Alap-Wich offers less interest, convenience and flexible to you.

              Reply
              • Hello Sir

                Thanks for Ur Support.

                Please inform me what is difference between Notarized and Registered Banakhat?

                And what is procedure of nolarizing and registering banakhat?

                Regards
                Alap

                Reply
                  • Hello Sir

                    Banakhat means Sale Deed after giving 20% Payment.

                    Reply
                    • Alap-How can it be sale deed with just 20% payment?

  4. Hi Basu,

    I have one query regarding Home loans income tax claim

    i have already one home loan with my name and i am planning to take one more home loam (one more house).
    Here I want to take the new home loan with my name and my spouse name(But right now my spouse is not earning anything)

    1.will i eligible for tax benefits with 2nd home loan also
    2.is it Good idea taking both names?

    Could you please advice

    Reply
    • Chennaiah-If your wife is not earning, then how the banks issue the loan on both of you?

      Reply
      • ok,
        1.if in case take one more one taking with my name.
        Will i eligible to both home loans for income tax claim?

        Reply
          • Basu,
            Can i have the that differ info?

            Reply
  5. I have taken a loan from HDFC and am paying pre-EMI. 50% of the loan amount has been disbursed by the bank. Can I do a pre-payment even though EMI has not yet started?

    Reply
  6. Hello,
    I have bought a home loan. To keep the same Rate Of Interest, i have to construct a home. Please guide me as how to get the construction approval and plan approval from BDA.
    Thanks!

    Reply
    • Geetha-I am not aware the approval process. Please contact BDA officials directly.

      Reply
  7. Loan sanctioned in feb 2014.

    i) property value < 40 lakhs
    ii) Loan value less than 25 lakhs
    iii) first home.

    Now as per disbursment of loan I just had 5 k interest in Feb 2014 and March 2014 which I claimed in IT return of 2014 under 80EE.

    Now upto March 2015 I will be charged additional interest of 105 K till March 2015.

    As still there is no possession of property and completion of property.
    Can I claim the interest of 95K under 80EE this year. and remaining of (105-95) 10k over next 5 year under 24(b).

    Reply
  8. I have sanctioned loan in April 2014 .
    As possession is in Jan 2015 only I started to pay EMI when I took loan.
    Now I will get the possession in 10 days.
    My question is it that whatever amount I paid Till DEC 2014 is PRE EMI?
    or
    It is that as all transaction happened in same financial year I can claim all the Principal and Interest stating I do not have any pre EMI to divide in to next 5 Years?

    Reply
  9. Anup-I mentioned the same point what you raised above in 1st point i,e. EMI section. Please read it once again for your better understanding.

    Reply
  10. Can we start paying full EMI even during the construction period, so as to bring down the principal component???? if yes, please name the HFCs which may allow such options.

    Reply
  11. oh sure it is clear now. THANKS

    Reply
    • Elan-Thanks for your comment 🙂

      Reply

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