1. Build your Credit Score
2. Reduce your Current Borrowing / EMI Costs
Those who are expecting a change in income or people who cannot afford to pay the full EMI while taking up the loan will know that pre-EMI payment is the best option.
The Pre-EMI and full EMI repayment method for a home loan have the same tax benefits. Tax deduction is not applicable if the building is in the construction phase. After the borrower receives the possession certificate, the amount paid as interest will be aggregated, and it'll be filed for tax deduction under five equal installments
Here is a list of conditions under which choosing the Full-EMI option is beneficial:
In conclusion, it can be said that there aren't many tax benefits for paying the interest amount during the pre-construction through Pre-EMI option as compared to the Full-EMI option.
The Full-EMI option is typically picked when the loan amount is disbursed for a single time. On the other hand, the Pre-EMI option is generally chosen when the total loan amount is disbursed in parts.
Interest rate calculation
The interest of Pre-EMI is compounded based on the total loan amount distributed to the builder while the interest for the Full-EMI option is estimated based on the principal loan amount.
Loan repayment tenure
Since the monthly installments under Full-EMI are made up of a significant portion of the principal amount, the debt is paid sooner by choosing this option.
The monthly payments start from the beginning of the construction in Pre-EMI option. Whereas, under the Full-EMI option the payments begin after the completion and ownership of the property.
Impact on the components of the loan
After making the payment towards subsequent EMIs under Full EMI, the principal amount and the interest rate is reduced. On the other hand, EMIs paid via the Pre-EMI option don't have any effect on the principal loan amount, rate of interest and tenure.
Resale of property
If a borrower uses the Pre-EMI option, they will be able to sell the building right after the construction is completed. Individuals who avail the Full-EMI option won't be able to sell the property right after the construction has been completed.
Impact on finances
Paying EMI through Pre-EMI is easier on the pocket since the borrower is required to pay only the interest during the pre-construction period.