Introduction
Purchasing a property under-construction in Pune (be it Baner, Wakad, Hinjewadi, Kharadi, Hadapsar, Magarpatta City, Aundh, Kothrud, Pimpri-Chinchwad, Viman Nagar, Koregaon Park, Bavdhan, Pimple Saudagar, Yerwada and Camp) usually involves pre-EMI payments. Pre-EMI stands for payment of interest on the home loan during the tenure of construction and till possession of the property. Knowing how Pre-EMI works will help homebuyers plan their finances and avoid surprises.
What is Pre-EMI?
Definition:
Pre-EMI is the interest component of the home loan that is payable to the lending bank during the construction stage of the property.
Key Points:
Begins from the time the bank releases the first installment to the builder.
Covers interest only, principal is not included.
EMI's for principal repayment begin once the builder hands over possession of the flat.
Example:
Lets say you take a loan of ₹60 lakh in order to purchase an apartment/flat in Baner,(the bank releases 10 lakh as the first installment to the builder in the first month). Pre-EMI for the first month at an interest of 8.5% would be ₹70,833 that month (₹10,00,000 x 8.5% ÷ 12).
How Pre-EMI is Calculated
Pre-EMI is calculated on the disbursed amount of the loan, not the total sanctioned loan.
Formula:
Pre-EMI = (Disbursed Amount × Interest Rate) ÷ 12
Illustration:
Total Loan: ₹60 lakh
Disbursed in 3 installments: ₹10 lakh, ₹20 lakh, ₹30 lakh
Interest Rate: 8.5% per annum
Note: Pre-EMI reduces as principal disbursement is completed, and total interest paid during construction is adjusted in regular EMI after possession.
Reasons Developers Encourage Pre-EMI for Buyers
Lower Financial Burden: Buyers only pay interest until the building is completed, reducing cash-flow burden.
Flexibility: Buyers can plan out their finances until they have possession of the property.
Payments Align with Possession: EMI on loan including principal payment begins once buyer takes possession of property; an aligned payment schedule.
Advantages of Pre-EMI for Pune Buyers
Buyers pay much less upfront: Only pay interest while the property is being built.
Cash-flow management: Especially good for salaried professionals or buyers intending on investing in the property for rental income post possession.
Tax Benefits: Interest paid during pre-EMI is still eligible for deduction under section 24(b) after assumption of possession.
Financial Planning: Use pre-EMI to estimate total interest costs and know total cost for expected post possession EMI.
Considerations to Know
Construction Timeline: Be wary of the timelines for construction for projects in such areas like Kharadi, Wakad, Baner to know when your pre-EMIs will start.
Number of disbursements: You only pay interest on the amount disbursed by the bank.
Impact on loan tenure: Pre-EMI does not shorten your tenure under your payment commitment; EMI will start only once you take possession of your property.
Financial cushion: Before committing to a pre-EMI payment scheme, make sure you have enough financial liquidity at all times so you are not stressed or short-changed.
Tax planning: Keep any receipts of pre-EMI payments until you claim the deduction for interest paid.
Example: Pre-EMI vs Regular EMI for a Hinjewadi Apartment
Observation: Pre-EMI is higher initially due to interest-only calculation on disbursed amounts, but overall monthly outflow is manageable until possession.
Tips for People Buying Real Estate in Pune
Double Check Disbursement Schedule: How will the bank pay the builder.
Pre-EMI Thoughts: Consider pre-EMI payments plus other fees such as stamp duty and registration, etc.
Loan Agreement Thinking: Check if pre-EMI is mentioned along with the rate of interest and calculation.
Tax Benefits: Keep all the receipts of pre-EMI payments for potential future tax benefits when you can claim effective EMI when the principal starts.
Projects: Whenever possible, try to pick RERA registered projects that may have a lesser enhanced risk factor with your initial investment through construction in areas such as Hadapsar, Aundh, Magarpatta City, etc.
To Finish Up
To finish up, in addition to other considerations. pre-EMI becomes another focus area that needs to be addressed for Pune buyers buying under-construction real estate properties, including in considering flexibility, suitable cash-flow and tax benefits, which can be useful resources. However, subject to proper planning and thought to calculate for, payments made, and whether/how payments align to respective timelines for possession of the property.
So whether in Baner, Wakad, Kharadi, Hinjewadi, Aundh etc., paying more attention to Pre-EMI can enhance the way buyers interpret the financing of their future dream home in Pune.
FAQs
1. What is Pre-EMI?
Pre-EMI is the payment that is interest-only and that you make to the bank when you proceed with a home loan, and the house is still under construction.
2. Does Pre-EMI reduce the loan tenure?
No, the loan tenor would start when regular EMI payments on the principal occur after possession.
3. Can I claim Pre-EMI as a deduction from taxes?
Yes, you can get tax deduction for the interest, which is paid during the pre-EMI phase under section 24(b) after possession.
4. How is Pre-EMI calculated?
Pre-EMI is calculated on the amount of loan that has been disbursed, not the total loan amount that was sanctioned, and is calculated as follows: (Disbursed Amount × Interest Rate) ÷ 12
5. When do regular EMIs begin?
Regular EMIs begin when the builder hands over possession of the property; the regular EMIs will also include the principal repayment.
6. Are Pre-EMI payments applicable to only under-construction property as well as ready-to-move-in property?
Pre-EMI payments are only applicable to under-construction property. If a property is ready to move, Pre-EMI does not apply.