EMI Options

Another important factor that worries the home loan seeker is the amount of EMI that needs to be paid during the construction phase of the property and the various options available.

1) Pre EMI: You pay only the interest on what is disbursed

Key Features

a) Principal Outstanding remains the same.

b) Validity of 12/24 months beyond which full EMI begins.

c) EMI calculated after the PRE EMI period will be higher as it will be on the balance tenure.

d) Some banks may start afresh with the initially agreed loan tenure.

e) If you have funds available you can additionally pay towards the principal any time during this stage.

f) Bank specific customization could be possible.

The Bottomline: To be availed only when paying the Full EMI is unaffordable during the construction phase.

2) Tranche EMI: You pay only the interest & principal on what is disbursed.

Key Features

a) Principal Outstanding comes down marginally.

b) Validity of 12/24 months beyond which full EMI begins.

c) EMI calculated after the PRE EMI period will be higher as it will be on the balance tenure.

The Bottomline: It’s a better variant to the PRE EMI as you contribute towards principal reduction on a monthly basis. Again, to be availed when paying the Full EMI is unaffordable during the construction stage.

3) Full EMI: You pay the FULL EMI calculated on the Full Loan Amount irrespective of the loan amount disbursed by the bank.

Key Features

a) The interest component of your Full EMI is calculated only on the disbursed loan amount and the balance component of the EMI will reduce the Outstanding Principal.

b) Principal Outstanding comes down considerably.

The Bottomline: It’s the best option as you contribute considerably towards principal reduction during the construction phase. Again, to be availed when affordability of the Full EMI is on your side.

4) No EMI: You take a loan, buy the house and don’t pay any EMI at all.

Wow….sounds great! At loangebra we are waiting for such a loan to be offered by banks.

But such an option doesn’t exist as of now.

What does, is “NO EMI till Possession”. So, let’s try & understand this option while we continue to eagerly wait for the No EMI Ever option.

5) No EMI till Possession (Subvention Scheme)

Methodology:  You pay about half of your entire 20% self margin upfront to the builder and pay no EMI’s till possession or a mutually agreed time frame of 18 to 36 months. The builder in turn pays the Pre EMI to the bank on your behalf for the amount the bank releases. The bank can either release the entire loan amount upfront or in tranches on the basis of the construction progress

Dissecting the Builder’s generosity:  The two reasons why the builder is ready to pay Pre EMI on your behalf are as follows -

a) The builder gets most of the money upfront, around 10% from you and 70% from your Bank/HFC even without starting the construction. However, in 2013 there was a clear dictate from RBI prohibiting banks from upfront funding to the builders without construction progress. So, if you still find builders getting upfront money be sure it must be a NBFC or a HFC which are not directly governed by RBI

b) In case the bank/HFC is funding the builder stage wise on the construction progress be sure that the rate/square feet of the apartment you buy under this scheme will be charged atleast Rs 400 to Rs 600/square feet higher than in the normal schemes

There could be BUILDER & BANK/HFC specific variation also, for ex: in some cases, your EMI’s will start upfront but the builder may pay you the Pre EMI/Interest component until possession or for a stipulated period. Alternatively, in some cases the regular EMI’s will begin only after the possession.

Not all builders & banks will offer this scheme. Moreover, with RERA kicking in these schemes have almost extinct.

The Bottomline: If avoiding Pre EMI during the construction phase is your only criteria then this is a good option.