{"id":32058,"date":"2023-08-28T12:54:01","date_gmt":"2023-08-28T12:54:01","guid":{"rendered":"https:\/\/www.tatacapital.com\/blog\/?p=32058"},"modified":"2025-12-15T00:03:38","modified_gmt":"2025-12-14T18:33:38","slug":"what-is-pre-emi-and-how-to-calculate-it","status":"publish","type":"post","link":"https:\/\/www.tatacapital.com\/blog\/loan-for-home\/what-is-pre-emi-and-how-to-calculate-it\/","title":{"rendered":"What is Pre EMI and How to Calculate It?"},"content":{"rendered":"\n

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When it comes to buying a home, many people opt for a home loan<\/a>. However, most people don\u2019t know that home loan repayment can be made in multiple ways.<\/p>\n\n\n\n

You can choose between pre-EMI and Full EMI options<\/a>, depending on your preference. If you\u2019re planning on getting a home loan, it\u2019s essential to understand these options to manage your finances efficiently while the property is constructed.<\/p>\n\n\n\n

In this article, we\u2019ll take a deep dive into what pre-EMI is, its advantages, and how to calculate it.<\/p>\n\n\n\n

What is Pre-EMI Meaning?<\/strong><\/h2>\n\n\n\n

A pre-EMI is a repayment scheme banks and financial institutions offer for home loans for under-construction properties.                                                                                                                                  <\/p>\n\n\n\n

Under this scheme, you\u2019ll only have to pay the interest on the amount disbursed by the lender. This means that during the construction phase of the property, you\u2019ll not have to pay the principal amount of the loan. Instead, you\u2019ll only have to pay the interest portion of the loan as EMIs. This interest-only payment is called pre-EMI.<\/p>\n\n\n\n

However, since the disbursal is based on completing different project phases, the lender may release the full amount in 3-6 tranches. Once you take possession of the property, your actual repayments start, and you\u2019ll have to pay the full EMI (principal amount + interest).<\/p>\n\n\n\n

Also, read – Top Things to keep in mind before prepaying your Home Loan<\/a><\/p>\n\n\n\n

Benefits of Pre-EMI<\/strong><\/h2>\n\n\n\n

Now that you\u2019re aware of what pre-EMI meaning, let\u2019s look at some of its benefits.<\/p>\n\n\n\n

1. Lower EMIs<\/strong><\/h3>\n\n\n\n

During the construction phase of the property, you only have to pay the interest on the disbursed amount. This leads to lower EMIs during the pre-EMI period, which helps you manage your finances effectively.<\/p>\n\n\n\n

2. Reduced financial burden<\/strong><\/h3>\n\n\n\n

The pre-EMI scheme is great for people who are renting a home but want to buy a house. It lets them pay only the interest on their home loan<\/a> till the property is ready.<\/p>\n\n\n\n

This makes it easier to afford and plan for the future, as they can expect their income to increase before starting full EMI payments.<\/p>\n\n\n\n

3. pre-EMI tax benefit<\/strong><\/h3>\n\n\n\n

Under the Income Tax Act 24, you can get Pre EMI tax benefits when you choose it as an option for your home loan. However, there\u2019s a catch! You can\u2019t claim a tax deduction on the interest you pay during the construction period.<\/p>\n\n\n\n

But once you own the property, you can claim the interest paid during construction in five equal installments for a tax deduction, up to a limit of Rs. 2 lakhs per year.<\/p>\n\n\n\n

Also, read – Importance of NOC After Paying off Your Home Loan<\/a><\/p>\n\n\n\n

Difference Between Full EMI and Pre-EMI<\/strong><\/h2>\n\n\n\n

1. Loan disbursal<\/strong><\/h3>\n\n\n\n

If you select the Full-EMI option, you\u2019ll receive the entire loan amount in one go. However, if you choose the pre-EMI option, the loan amount is disbursed in installments.<\/p>\n\n\n\n

2. Interest rate<\/strong><\/h3>\n\n\n\n

The interest of pre-EMI is calculated on the loan amount disbursed<\/a>. On the other hand, the full-EMI interest is calculated on the principal loan amount.<\/p>\n\n\n\n

3. Repayment period<\/strong><\/h3>\n\n\n\n

Choosing Full-EMI over pre-EMI leads to faster debt repayment as monthly installments cover a larger portion of the principal amount.<\/p>\n\n\n\n

4. Principal Amount<\/strong><\/h3>\n\n\n\n

The Full-EMI principal loan amount and loan tenure<\/a> decrease with each monthly payment. However, there is no impact on the loan tenure, principal loan amount, or interest rate under the pre-EMI option.<\/p>\n\n\n\n

5. EMI payments<\/strong><\/h3>\n\n\n\n

The pre-EMI monthly payments commence as soon as construction begins. Whereas full-EMI payments only start once you\u2019ve taken possession of the property after it is completed.<\/p>\n\n\n\n

Also, read – Renting vs buying a house in India: Pros and cons<\/a><\/p>\n\n\n\n

How to Calculate Pre-EMI?<\/strong><\/h2>\n\n\n\n

To understand how to calculate pre-EMI, let\u2019s take an example.<\/p>\n\n\n\n

Let\u2019s assume Rohan avails a loan of INR 20 lakhs<\/a> for 20 years at an 8% interest rate. He takes this loan for a new under-construction property that\u2019ll be completed within 2 years. So, in the first tranche, the lender disburses Rs 4 lakhs.<\/p>\n\n\n\n

Here\u2019s what it\u2019ll look like:<\/strong><\/h3>\n\n\n\n

<\/p>\n\n\n\n

Disbursement Timeline<\/td>Disbursed Amount<\/td>Total Disbursed Amount<\/td>pre-EMI (Rs)<\/td>Regular EMIs(start after 24 months)<\/td><\/tr>
Initial<\/td>4,00,000<\/td>4,00,000<\/td>2,666<\/td>16,729<\/td><\/tr>
6 months<\/td>4,00,000<\/td>8,00,000<\/td>5,333<\/td>16,729<\/td><\/tr>
12 months<\/td>4,00,000<\/td>12,00,000<\/td>8,000<\/td>16,729<\/td><\/tr>
18 months<\/td>4,00,000<\/td>16,00,000<\/td>10,667<\/td>16,729<\/td><\/tr>
24 months<\/td>4,00,000<\/td>20,00,000<\/td>16,729<\/td>16,729<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

The lender disburses the principal amount in 5 tranches based on the completion of the project, with the final instalment being disbursed upon possession of the house. It\u2019s important to note that pre-EMI isn\u2019t included in the original tenor of the loan, and it extends beyond the loan\u2019s actual term. As a result, Rohan ends up paying more interest than he would otherwise.<\/p>\n\n\n\n

The stark difference between full EMI and pre-EMI, as per the above example, is that you can repay the loan within 20 years in the former. While in the latter, you\u2019ll repay the loan in 22 years.<\/p>\n\n\n\n

Also, read – How Home Loan Top-up Work \u2013 A Complete Guide<\/a><\/p>\n\n\n\n

Tax Benefits on Pre EMI Interest in Home Loans<\/strong><\/h2>\n\n\n\n

Pre EMI tax benefits help you save smart on your home loan. Here\u2019s how home loan tax deduction and pre EMI interest deduction work, with key housing loan tax benefits<\/a>.<\/p>\n\n\n\n

So what is pre EMI interest? Pre EMI interest is the interest paid during the construction period before full EMIs start.<\/p>\n\n\n\n

You can claim this pre EMI income tax deduction under Section 24(b) of the Income Tax Act after the possession of the property.<\/p>\n\n\n\n

Also, read – Types of Collateral Properties Which Can be Used for a Loan<\/a><\/p>\n\n\n\n

When Should You Opt for Pre EMI?<\/strong><\/h2>\n\n\n\n

Specific situations help you decide when to choose pre EMI. Pre EMI best time is when you need short-term relief without stopping the loan progress.<\/p>\n\n\n\n

Here\u2019s pre EMI vs full EMI timing<\/a>, to help you when opting for pre EMI.<\/p>\n\n\n\n