May 9, 2018

What is Pre EMI, need to know before buying a Property?


A Pre-EMI (Equated Monthly Instalment) is where a Borrower is called upon to pay only the interest component of the EMI. Where a loan is only partially disbursed, the Borrower has an option to pay pre-EMI - EMI until the loan is fully disbursed. Thereafter, payment of the regular EMI (including components of both principal and interest) will commence.


In a pre-EMI arrangement, the instalment of interest is calculated only on the amount of loan disbursed and outstanding. The entire amount paid is adjusted by the Lender towards interest due and there is no change in the amount of loan outstanding except for an increase in the event of further disbursement. 

Loans are mostly disbursed in tranches depending up on the progress in  implementation of the project. Thus, the pre-EMI would increase with each succeeding disbursement as the amount outstanding increases. The regular EMI would generally become payable after one clear calendar month from the date of the final disbursement.

Opting for Pre-EMI:

Working out on the option for pre-EMI would be a sensible decision for a Borrower:

* If the borrower is facing cash flow constraints. 
*If the Borrower is staying on rent, he/she may not have the financial capacity to pay the monthly rental and the full EMI concurrently. Or, he/she may be expecting a pay increase before long.
*If he/she is an investor who will be selling the property soon after taking possession.

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