What is EMI and pre-EMI?

March 10, 2009

Banking, Home Loans, Income Tax

In this article I will be writing about the difference between EMI and pre-EMI. Most of the people heard about the EMI, not aware of the pre-EMI and the benefits involved in the pre-EMI. In this article we will look into more details about the pre-EMI and in what situation pre-EMI can be benefited your savings. I am looking to hear feedback from you after reading this article. Please post your comments about the home loans and EMI calculation at the comments section. You can subscribe to this blog here.

What is EMI?

EMI stands for Equated Monthly Installment.When you are applying for the loan, the loan amount has to be repaid in the specified number of months. That is called EMI. The EMI is calculated based on the interest rates, total loan amount and the tenure of the repayment for the entire loan. This will be decided by the bank once your loan application is got approved.

This process is very normal and everyone is aware of this term. But, there is another term pre-EMI, that is very less known to the people. In the next section we will look into that in details. Pre-EMI is one of the important fact which every buyer should know before applying for the loan when the building construction is not yet completed. After reading this article please talk to nearby banker to know more about the Pre-EMI and its advantages. The process for Pre-EMI can be different from each bank.

also read:

What is pre-EMI?

Sometimes the whole money for the house is not disbursed to the builders. For example, if you are booking an apartment to a builders in Bangalore city on March 2009, the estimated completion time for the project is March 2011. You will have the option to tell the bank to not disburse the entire amount before completion of the project, and tell them to partially disburse the money.

The partial disbursement will happen like when the builder completes the first four floors for the first disbursement and the next stage of disbursement will happen after completion of the eight floors. These are the agreements between bank and builders based on bank’s decision.Here the pre-EMI term comes into the play. The real loan repayment will start only when the entire loan amount is disbursed to the builders. While the bank is doing the partial disbursement, you will have to pay the pre-EMI, that is only the interest accrued on the disbursed money. In our example, you will have to pay the pre-EMI for the two years when the apartment is under construction.

Tax Savings on pre-EMI

You can use the home loans for tax savings only when the construction is completed. In this case, pre-EMI is paid while the house is under construction. So, you cannot use the pre-EMI as the tax deduction source. Once the construction is completed, the total pre-EMI interest paid is shown in the five equal installments in the subsequent years.

For example, if you have paid Rs.100000 as the pre-EMI, then Rs.20000 will be shown in the next five years as tax deduction. Note that pre-EMI is only the interest paid during the period. If you have paid any principal amount, that is not eligible for the tax deduction. That is lost for ever. Please consult your tax consultant carefully before taking any important decision.

Summary

In this article have explained about what is EMI and pre-EMI in the detailed manner. This will clear all your doubts about the pre-EMI and how to use the pre-EMI amount for the tax deduction. I am happy to answer all your questions regarding the home loans and tax savings. If you have any queries, please post it in the comments section below. I will answer your queries. Thanks for reading this article!!!

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129 Responses to “What is EMI and pre-EMI?”

  1. Sekhar Says:

    Good article

    Reply

  2. Sekhar Says:

    Hi,

    really a nice article.

    Thanks,
    Sekhar

    Reply

    • krishnas Says:

      Hello Sekhar,

      Thank you for reading the blog!!

      Thanks,
      Krishna

      Reply

      • Rajagopal Says:

        Dear Krishna

        Simple way to explain the difference in pre emi and emi which almost every one faces this issue in their lives.

        Can pre-emi interest paid be added to cost of acquisition in the event the property is disposed off prior to taking possession.

        Regards
        Rajagopal

        Reply

  3. tony Says:

    Can I also start repaying the principal amoun along with pre-emi?Will banks allow that? If so I think pre- emi will be better than normal EMI.

    Assuming I have a repaying capacity of 40k per month but currently I am paying a rent of 15 k. so If I go for EMI my loan amount has to be for an EMI less than 25k.but if pre EMI is 15K I have option of start paying some part of principal. which may also reduce the intrest once pre-emi period is over.So if is a flexi emi repayment option is avilable I think you can have the best option with pre-EMI. AM I correct?
    Pleas clarify If not.

    Reply

  4. kamlesh Says:

    Do we have Fixed/Floating intrest rate option available for PRE-EMI?

    Reply

  5. Ravi Shankar Says:

    Hi,

    This is cool.

    Want to know details say if I take loan of 20 Lakhs and my house construction would be over in a year.

    What would be the amount (monthly) I would be paying to bank, say rate of interest is 10.5%.

    If you could add this to your article it would be really helpful.

    Regards,
    Ravi

    Reply

  6. home loan buyer Says:

    good 2 know pre emi. I think it is linked to CLP (construction Linked Plan). Can we have pre emi in Down payment at once, plan. Mean suppose project is nearly to complete in 1 year and there is no CLP plan for this. So we go for DP plan but want to disburse full amt only when project is completed. Till one year I want to pay PRE- EMI. Is it possible :)

    Reply

  7. Rohit Says:

    Heloo

    I Have gone thorugh the article and came to knw about few facts bout PEMI and EMI i have some ques

    1) PEMI is amount of interest paid on partial disbursement by Bank , i want to knw if total loan amount is 35 lac and 30 lac is disbursed till date and PEMI = 27000 appx so i am giving 27000 rs only intrest , as full disbursement not occured yet and my tenure for 20 yrs also not started till now.

    2) Bank is giving me option tht i can strt EMI on disburse amount ( i.e 30 lac ) which will cost me EMI = 31000 appx which will contain both interest and principal amount both.

    I am not getting wht is correct for me as in point 1 i m giving only interest part and thinking that total money is going as waste as no interest and principal of 20 yrs tenure started

    if i will go with point 2 then EMI will strt on 30 lac disbursed amount out of 35 lac sanction amount and possesion is still not in hand and i will pay intrest n principal of 20 yrs tenure

    So plz suggest me is there is very big difference in point 1 & 2 or the way i m thinking is not correct or what is right for me PEMI or EMI

    Also plz tell if i start EMI on 30 Lac then can i claim both intrest and principal amout i will pay whole year in tax rebate or as still whole 35 lac amount not disbursed and possession not in hand i cant go for tax rebate.

    i hope u understand my situation so kindly suggest me
    Rgds
    Rohit

    Reply

    • krishnas Says:

      Hello Rohit,

      Before the possession, what ever the amount you are paying for the principal is not claimed for the tax exemption, If you pay for the pre-EMI, then the amount can be claimed for the next five years once the possession happened. The amount includes the interest on current year + pre-EMI 1/5 amount (Rs. 1500000). So, based on that please decide.

      By seeing your details, it would be hard to provide any suggestion.

      Thanks,
      Krishna

      Reply

  8. Srikant Says:

    I have a situation where builder has agreed to pay all PRE-EMIs by directly crediting the PRE-EMI amount in my Savings Account. I pay the Bank from my account. This arrangement is valid till completion of construction. However I am not sure how the TAX will be treated in this case. Is the amount that Builder is paying me considered as Source of Other Income and I have to pay tax and then reclaim it after possession over next 5 years time frame ? In this case I have paid 20% and Bank released 75% with 5% to be paid at time of possession by Bank.

    Reply

  9. Niel Says:

    Sir,
    I took loan from a bank for 30 Lakh on march 13th.
    My emi of 29250 started from 5th April.
    But they took a check from me on the name of pre emi of 15851 Rs as pre emi quoting interest amount on 30 Lakh for march 13th to march 31st.
    While i had purchased the house in a resale.
    Is this correct.
    I am getting a foul play here.Please advise
    Thanks
    Niel

    Reply

  10. Kumar Says:

    Sir, Please clarify the following :-
    The total loan amount applied to Bank is 5 lakhs
    The bank loan cheque dated is 29/6/2013 for entire loan amount of Rs.5 lakhs
    The cheque was received by me on 2/7/2013
    My EMI dated is fixed for 1s of very month. In this case
    Please let me know whether I pre-EMI payment is involved in this particular case.

    Thanks, Please reply me

    Reply

    • krishnas Says:

      No. Pre-EMI is applicable only for the partial loan disbursement. Once the whole loan amount is disbursed, actual EMI will start.

      Thanks,
      Krishna

      Reply

      • Kumar Says:

        Thank you so much.

        Reply

        • krishnas Says:

          Thank you for reading my blog.

          Reply

          • Nithin Says:

            Hi Krishna, Good work with the blog.
            I have taken a loan of 20 lakhs and i am paying pre emi now for the last 1 year . The construction of the flat is expected to finish in another 2 years.
            Is it better to stop pre emi now and start with full emi.
            Can u pls confirm if pre emi is an additional amount payed to the bank compared to the normal emi.

            Reply

            • krishnas Says:

              HI Nithin,

              Pre-EMI is normally for the partially disbursed amount. That means, you are paying only the interest, not the principal. Once the entire loan got disbursed, bank will start the actual EMI.

              When you are paying the pre-EMI, you can not claim the tax deductions?

              Thanks,
              Krishna

              Reply

  11. Kumar Says:

    Can you please explain with an example?

    I am planning to book an apartment which will be handed over to me in another two years. i am going to apply for loan amount of 30 Lkhs.

    Assume i am choosing pre EMI option.

    how it will be calculated..

    Reply

  12. K MURALIDHARAN Says:

    Sir,
    I am working in a public sector , i have borrowed an amount of rs.1200000 as housing loan for purchase of a flat, and i got the full amount in the month of june 13. principle amount and interest amount is deducted from the july 2013. now i want to know that the principle and interest amount deducted is eligible for tax deduction.

    ****note that i have not occupied the house.
    please clarify.
    since i have no idea about this things
    k MURALIDHARAN

    Reply

  13. Kishore Says:

    sir, I ‘ve made an agreement for Rs25 lacs for under construction flat & ‘ve paid 5 lacs as down payment . & I want to make my own contribution for Rs 5 lac before possession of flat i.e 2015 .Therefore I ‘ve applied for home loan for Rs15 lac for 15 years ..But bank refused ..either I pay my own contribution now or take 20 lacs home loan .Noway, ,so I’ve applied 20 lacs for 15 yrs & which been sanctioned as sir, I ‘ve made an agreement for Rs25 lacs for under construction flat & ;ve paid 5 lacs as down payment . & I want to make my own contribution for Rs 5 lac before possession of flat i.e 2015 .Therefore I ‘ve applied for home loan for Rs15 lac for 15 years ..But bank refused ..either I pay my own contribution now or take 20 lacs home loan .Noway, ,so I’ve applied 20 lacs for 15 yrs & which been sanctioned as well ..So my question can I be allowed to avail full EMI for 15 lacs ,,since I ‘ll be paying 5lacs to the builder after sometimes …& if I’ve to pay full EMI for 20 lacs it will be great burden for me . Pl suggest so the EMI is affordable .
    thanks
    Kishore

    Reply

  14. P Sarkar Says:

    I am paying Rs. 28,500/- pm as PEMI against my disbursed amount of Rs. 31.36 lacs and my total approved loan amount is 33 lacs.

    My question are as follows:
    Q1- When my tenure of 20 yrs will start?
    Q2- As I am paying PEMI as the interest of partial disbursed amount, then this amount of PEMI will not considered in calculation of EMI?

    Reply

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