Pre-EMI vs Full-EMI: Which EMI Option is Better for You?

When you take a home loan, you get two EMI options. Each works differently and suits different needs.

• Full EMI: You start repaying both principal and interest from day one.
• Pre-EMI: You pay only the interest during the property’s construction period.

Both have their own benefits. The right choice depends on your budget and future plans for the home. Read on to understand how each option works and which one may suit you better.

What is Pre-EMI?

This option allows you to only pay the interest during the construction period of the property you are buying. Once the property is ready for possession, you can start paying the principal amount. 

Pre-EMI applies only to loan amounts disbursed in tranches during the construction period. Thus, it is of a smaller amount and reduces the repayment burden during this phase. 

What is Full EMI?

Full EMI means you start repaying both the principal and interest as soon as the loan amount is disbursed. This is applicable even if the property is under construction.

This option increases your monthly outgo early on but helps you reduce the overall interest paid. It works well if your finances are in place and you’re planning to move in once the home is ready.

Features of Pre-EMI

Here are some key features of choosing the pre-EMI option for your home loan:

• Lower initial payments: You only pay interest, which is lower than the full EMI. The annual interest is divided by 12 to get your monthly outgo.
• Helps build repayment discipline: Ideal for first-time homebuyers. It helps you get used to monthly payments before switching to full EMIs.
• Tax benefits: You can claim a tax deduction on pre-EMI interest under Section 24 once the construction is complete. If the property is self-occupied, this benefit applies only under the old tax regime. If you plan to rent it out, you can claim it under the old or new tax regime.
• Overall interest: Since principal repayment starts later, the overall interest paid over time may be higher.
• Loan tenure: The pre-EMI tenure is an add-on over your overall repayment period. This increases your complete repayment tenure, depending on how long the construction takes. 

Features of Full-EMI

Choosing the full EMI option comes with its own set of advantages:

• Starts immediately: You begin repaying both principal and interest as soon as the loan is disbursed.
• Lower overall interest: Paying the principal early helps reduce the total interest over time.
• Loan tenure: The repayment period is shorter since there’s no extra pre-EMI phase.
• Principal reduction: Your loan balance starts reducing right from the first payment.
• Ideal for end-use: Best suited if you plan to move in after possession and can manage higher EMIs.

Also Read: Benefits of Making Timely EMI Payments

Differences Between Full EMI and Pre-EMI

Make a smarter decision by keeping their distinctions in mind relating to the cost, tenure and more. 

Parameters	Full EMI	Pre-EMI
Loan Disbursal	Complete loan amount disbursed	Loan disbursed in portions as per stages of construction
Interest	Interest is to be paid on the total principal amount	Interest only on the disbursed amount
Component	Interest and principal	Only interest
Tenure	Shorter repayment tenure	Longer repayment tenure
Impact on Principal Amount	Decreases the principal amount	No impact on the principal amount
Payment Options	Starts after the construction period	Starts during the construction period
Property Reselling Options	There are limited options to resell your property during this time	You can resell the apartment during construction
Optimal Condition	Allows you to invest in the property after the construction is complete	Allows you to invest in a property while it is being constructed

Also Read: How To Make Advance Emi Payment Online

Conditions of Choosing Pre-EMI

Here are some situations where this option is more suitable:

• If you are living on rent and want to invest in a property under construction
• If you plan to sell the property soon after construction is complete
• If your income is expected to increase soon, and you want lower payments for now
• If you want to reduce financial pressure during the construction period
• If you are buying the property as an investment and not for immediate use

Conditions of Choosing Full-EMI

Full-EMI works well in these cases:

• If you are financially prepared to handle higher monthly payments from the start
• If you want to reduce your total interest outgo over the loan tenure
• If you are planning to move into the property after possession
• If you want to close your loan faster with a shorter repayment period
• If you’re comfortable starting principal repayment immediately

How to Calculate Pre-EMI?

To calculate your pre-EMI, you can follow these formulas.

• Step 1: Find the pre-EMI interest 

Monthly interest rate = Total interest rate / 12

1.2

• Step 2: Find the payable pre-EMI interest 

Interest = Loan amount x Monthly interest rates

1800000

• Step 3: Find the pre-EMI repayment amount

Amount = Pre-EMI interest x Number of months

• Step 4: Find the total repayment amount

Total Repayment = Loan amount + Total EMI amount

You can also use a pre emi calculator to make this easy on yourself and prevent any mistakes. 

EMI Calculation Formula With An Example 

Say that you plan to take a loan of ₹20 lakhs for an under-construction property and the fixed rate of interest is 8% with a repayment window of 20 years. In this case, your full EMI will come to ₹16,729. Now, say that you choose pre-EMIs and your loan is given to the builder in five installments as per completion of construction. 

Say the first loan instalment is ₹4 lakhs for 6 months. Your pre-EMI will only be the interest on this amount, which comes to ₹2,666. Say the second loan instalment is of ₹4 lakhs post 6 months. Now, your pre-EMI will be ₹5,333. This will keep increasing until all the money is disbursed and you start paying full EMIs. 

Once you have a cohesive understanding of how this works, you can choose the best option. Since pre-EMIs end up increasing your overall interest, it may be better to choose full EMIs in case you plan to live in the home yourself. To do up your new home, you can opt for a Fibe Instant Personal Loan with minimum paperwork.

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FAQs on Pre-EMI

Is pre-EMI a good option?

Once you understand the meaning of pre-EMI, you can take a call about whether this is a worthy option for you. It can be ideal if you plan to sell the home after construction or want to invest in a home in the pre-construction period. 

Can I switch from pre-EMI to full EMI?

Yes, you can switch to full EMIs either after the construction is finished or even while construction. This depends on the lender you choose and its policies. 

How to claim pre-EMI interest deduction?

You can avail of the tax deduction on the interest you pay as pre-EMI only if you choose the older tax regime and self-occupy the property. You can also claim it if you plan to rent out the property no matter which tax regime you choose. 

Which is better, pre-EMI or full EMI?

This entirely depends on your current financial situation and your future goals with the property you plan to buy. If you want to pay less overall, choose full EMIs as they reduce your total interest dues. If you want to invest in real estate and sell the property soon after construction, pre-EMIs are the best option.