When you take a home loan for an under-construction property, lenders often offer a Pre-EMI option. Instead of paying the full EMI (principal + interest) from day one, you pay only the interest portion until construction is completed and the full loan is disbursed.
While many see Pre-EMI as a temporary relief, it has hidden benefits that can help you save money and manage finances better.
1. Lower Initial Outflow
Pre-EMIs are smaller than full EMIs, allowing you to manage cash flow during the construction period. This is especially helpful if you are paying both rent and loan payments simultaneously.
2. More Time to Plan Finances
With reduced monthly payments initially, you can plan for furnishing, relocation costs, or other financial commitments before full repayment begins.
3. Better Investment Opportunities
The money saved from lower EMIs can be invested elsewhere, potentially earning returns during the construction phase.
4. Smoother Loan Servicing Record
Timely Pre-EMI payments build a positive repayment history, improving your credit score and strengthening your eligibility for future loans.
5. Flexibility in Switching to Full EMI
Some banks allow you to switch from Pre-EMI to full EMI anytime, which can help you start reducing the principal earlier if your finances allow.
6. Potential Tax Benefits
Interest paid during the Pre-EMI phase can be claimed as a deduction in five equal installments after construction completion under Section 24(b) of the Income Tax Act.
Borrower’s Tip:
While Pre-EMI reduces the immediate burden, it doesn’t lower the total interest cost unless you switch to full EMI early. Consider making part-prepayments during this phase to save more in the long run.
FAQs
Q1: How is Pre-EMI calculated?
A1: It’s calculated only on the disbursed loan amount, based on the prevailing interest rate.
Q2: Can I start full EMI during the construction phase?
A2: Yes, most lenders allow early switch to full EMI.
Q3: Does Pre-EMI save interest in the long run?
A3: Only if you make prepayments or switch early — otherwise, interest accumulates.
Q4: Can I claim tax benefits on Pre-EMI?
A4: Yes, but only after possession and in equal installments over 5 years.
Published on : 11th August
Published by : SMITA
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