The ability to purchase a home is elating. It is true, few experiences can match the surreal feeling of owning your home. Apart from being a space that you can call yours, it is also a great investment that reaps you immense benefits over the years. However, it is not easy to generate the high amount of funds required to buy a home. Fortunately, you can avail an affordable home loan. Home loans are great financial products that help you get a step closer to attaining your dream home.
Leading financial institutions like Finserv MARKETS offer great home loan opportunities. However, it is important to understand the aspects of the product before you are bound by the same. EMIs or equated monthly instalments are a vital part of home loans. As you may already know, it is the repayment option through which you pay your principal and interest amount in a fixed monthly payment. Over the years, lenders have started offering another repayment option in the form of a pre-EMI plan. Read on to know more about this home loan EMI option.
What is Pre-EMI?
Pre-EMIs are made until the full home loan amount has been disbursed by the lender. Typically, this option is offered on home loans that are offered to fund under-construction properties. The pre-EMI is paid until the construction of the property is completed. Once done, the borrower must start paying the EMIs. As part of this agreement, the lender disburses the funds as per the construction phase of the home. The interest rate too is paid in partial disbursements. When the construction of the property is complete, the borrower has to start paying EMIs as usual.
EMI Vs Pre-EMI – What’s the Difference?
An EMI is the repayment of the principal loan amount as well as the applicable interest costs. The pre-EMI on the other hand, only comprises the repayment on interest of the loan. When you choose the pre-EMI option, you have to pay the interest against the loan until the construction of the home is completed. The payment of pre-EMIs is concluded when you start paying EMIs. The Pre-EMI mode essentially helps you lower your repayment burden when the EMI payments begin.
To Illustrate- Let’s take for instance Raj who opts for a home loan for a tenure of 20 years. He picks the pre-EMI option and starts making the payment until the completion of the construction. The construction of his home spans over 7 years, so he makes pre-EMIs for 7 years. Once this concludes, he will start paying the regular EMI for 20 years. Thus, he makes repayments on his home loan for a total of 27 years.
Home Loan Pre-EMI – Is it for you?
The home loan pre-EMI option is great if you recurrently face issues with cash flow. You can opt for the pre-EMI option especially if you are not able to make your EMI payments in the present. This way you do not have to wait for the disbursal of your entire loan amount before you can start repaying the loan amount. It reduces your payable interest rate on the home loan EMI in the stages post construction of your home. So, you can avail the option during instances such as:
- When you have inadequate funds to afford the EMI.
- When you have other credit requirements and cannot spare enough for your home loan EMI.
- When you wish to invest the difference saved through the pre-EMI on other high return investments.
- When you plan on selling the home right after the construction is completed.
Get the Pre-EMI Option – Essentials to Note
The Pre-EMI option on your home loan carries several benefits. However, it is important that you use the facility wisely. Here are some essential factors that you must consider when opting for the pre-EMI option:
- Consider how much of the funds you currently possess to service a debt.
- Evaluate whether you can pay an EMI and handle other additional expenses.
- Verify the future value of your home carefully.
- Check the investment options that you can avail through payment cutbacks on pre-EMIs.
The pre-EMI option is a good way to accommodate a home loan even in times of disrupted cash. Use the home loan EMI calculator from Finserv MARKETS to help understand the best choice to suit your home loan application.