When you buy property that is still being built, the bank releases the loan in stages, and not at once. It is released in stages based on construction progress. Such a loan is called an under-construction home loan.
As the bank releases the loan in stages, you have to pay interest on each tranche. The interest is the additional cost that homebuyers have to pay on top of the full EMI. Most homebuyers focus on the full EMI they have to pay after possession and never calculate the Pre-EMI to be paid during construction.
In this loan, the repayment of the principal amount starts after possession. The tenure of the loan includes the construction period. Homebuyers can get a tax benefit on the interest paid during construction.
Pre-EMI is the interest you pay on the amount disbursed so far on a monthly basis. It is interest-only, and it is calculated only on the disbursed amount. As the stages of the construction loan increase, your monthly Pre-EMI payment increases based on the new outstanding amount.
How does the loan work?
The loan is released based on the construction milestone, which may differ for different builders and banks.
For example, the lender agrees to give a loan of Rs. 50 lakhs over a period of 24 months. The disbursement happens every 4 months.
- For the booking stage, the amount released is Rs. 5 lakhs, and the interest has to be paid on this amount. Monthly Pre-EMI is Rs. 3,542.
- For the foundation stage, the amount released is Rs. 7.5 lakhs, and the interest has to be paid on the cumulative amount of Rs. 12.5 lakhs. Monthly Pre-EMI is Rs. 8,854.
- For plinth completion, the amount released is Rs. 7.5 lakhs, and the interest has to be paid on the cumulative amount of Rs. 20 lakhs. Monthly Pre-EMI is Rs. 14,167.
- For the floor slab completion, the amount released is Rs. 10 lakhs, and the interest has to be paid on the cumulative amount of Rs. 30 lakhs. Monthly Pre-EMI is Rs. 21,250.
- For roof slab completion, the amount released is Rs. 10 lakhs, and the interest has to be paid on the cumulative amount of Rs. 40 lakhs. Monthly Pre-EMI is Rs. 28,333.
- For the completion stage, the amount released is Rs. 10 lakhs, and the interest has to be paid on the cumulative amount of Rs. 50 lakhs. Monthly Pre-EMI is Rs. 34,417.
The Pre-EMI does not reduce your principal amount and interest, which has to be paid after possession.
When does full-EMI begin?
In most of the cases, the full-EMI starts after possession (when you receive the keys and occupancy certificate), final disbursement (when the last tranche is released) or a lender-defined trigger (loan agreement clause). Some banks start the full-EMI after 6 months of the final disbursement.
You can use a construction loan EMI calculator to know the monthly EMI you need to pay. Input the loan amount, duration and interest rate to get the results.
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