What is Pre-EMI, and How is it Different from Full EMI?

Entering a home loan agreement often comes with its own terms and conditions that might seem confusing to first-time borrowers. One such term that often creates confusion is 'Pre-EMI.' Explore the Pre-EMI concept and how it differs from a full EMI.

Understanding Pre-EMI

Let’s delve into what is Pre EMI. Pre-EMI, short for Pre-Equated Monthly Installment, is an interim interest a borrower pays the lender. It comes into play when you take out a loan for an under-construction property. You pay Pre-EMI on the disbursed loan amount until the final disbursement occurs. It only includes the interest portion of the loan and does not contribute toward principal repayment.

How Pre-EMI Works

For instance, you've taken a home loan of Rs 50 lakh for an under-construction property. The bank releases Rs 10 lakh as the initial disbursement, on which you'll pay the Pre-EMI. As the construction progresses and we disburse more money, the Pre-EMI increases accordingly.

Pre-EMI vs Full EMI

Full EMI or Equated Monthly Installment includes the loan's principal and interest components. It begins once we disburse the entire loan amount. Unlike Pre-EMI, it contributes to both the interest and principal, gradually reducing the outstanding loan amount.

Opting for Full EMI over Pre-EMI offers the benefit of quicker loan repayment. However, Pre-EMI offers lower monthly payments during the construction period, providing relief to those with existing financial commitments.

Making the Right Choice

The decision between Pre-EMI and Full EMI primarily depends on your financial condition and the readiness of your property. If you can service Full EMI from the beginning, opt for it and start reducing your loan liability. Conversely, if you have other financial commitments and the property is under construction, Pre-EMI can lighten your financial burden.