Under Construction Property EMI Calculator
Plan your finances for your under-construction property with our EMI calculator. Estimate your monthly payments and make informed decisions about your future dream home.
How EMI calculated for loan for construction of property?
In the case of under construction property, the payment tenure is divided into the pre-EMI period and the Actual EMI period.
The pre-EMI is when the full loan has not been disbursed and that is typical of under construction properties where the loans are disbursed by the bank in tranches based on the extent of completion of the property. From the time the first tranche is disbursed, the interest meter starts to tick.
During the pre-EMI period, only the interest amount is charged each month and that too based on the extent of disbursal. In many cases, the bank also allows the borrower to start the actual EMIs after the actual possession, in case the gap is not too much. However, in such cases, if the loan has been disbursed fully, then full interest will be payable.
Alternatively, the borrower can also opt to start the full EMI payments, if they do not have rentals to worry about. In such cases, the loan tenure does not get extended and the borrower does not end up paying interest on the pre-EMI component. However, once the actual EMI period starts, the borrower needs to pay the full EMI amount which will include the interest and the principal portion. It is important to start this process as early as possible so that your home loan liability reduces. Otherwise, the longer you pay interest, the full amount of loan still remains outstanding. This is something borrowers must also keep in mind while opting for moratorium ahead of full EMI period starting.
What is the difference between pre-EMI and full EMI?
Pre EMI is the period when the loan has been disbursed either fully or partially, but the actual EMI payout has not begun. During the pre-EMI period, only interest is payable on the loan to the extent disbursed.
However, the choice is on the borrower and they can opt to start the full EMIs as soon as the instalments are disbursed and not wait for full possession. In such cases, it works out economical.
However, there are some cases, where an extended pre-EMI period can be useful. Here are some instances.
- If you feel that you can earn good returns on the principal portion saved, then you can look to extent the pre-EMI period.
- Also, if you are looking to sell the property on getting the possession, it is not a bad idea to extend the pre-EMI period.
- In case you are short of cash and are expecting a raise or a big inflow in 2-3 months, it makes sense to have an extended pre-EMI period and start full EMIs after that.
- Suppose you are staying on rent and don’t want to take the dual burden of rent and EMI, then you can choose the pre-EMI option and just pay the interest amount.
In all the other cases, it is always better to start the full EMI period at the earliest.
Benefits of using EMI calculator for under construction property
Here are some of the key benefits of using EMI calculator for under construction property.
- It allows you to simulate the break up of the total cost of the pre-EMI interest cost and the actual EMI cost.
- It allows you to take a rational call on whether pre-EMI is really useful or if the cost is too much, then should you start full EMIs early
- It allows a comparison of the ratio of interest cost to the loan principal under the pre-Emi scenario and the post EMI scenario.
- The EMI calculator is a very important decision tool in the case of under construction property which shows whether to opt for the property or not. It is always better to be cautious of property with long construction periods.
- It also allows comparison across banks whether the pre-EMI interest concept is really working for you and which bank is offering the best deal.
- The calculator allows you to simulate different scenarios of what could happen if the project gets delayed and what it could mean for your finances.
- Above all, the EMI calculator is also a key deciding factor of whether you should for a under construction property or for ready to move in property.
These are all just indicative data points and actuals must still be checked.
How to use EMI calculator for under construction property
There are simple ways to use the EMI calculator for moratorium by splitting between pre-EMI and post-EMI. But that is a very simple part. The more complex part is to simulate difference scenarios when moratorium is taken.
We assume a case of a home loan of Rs. 50 lakhs for 15 years (180 months) at an interest rate of 8%. Let us look at 3 options.
- The first is the plain vanilla option, wherein you don’t use the moratorium or deferment at all. In this case, your total monthly EMI will be Rs. 47,783 over a period of 180 months. The total interest component will be Rs. 36 lakhs, so the interest to principal ratio over the tenure will be 72%.
- The second is scenario, wherein you opt for a 3 month moratorium but keep the overall tenure same at 180 months. In this case, your total monthly EMI will be Rs. 48,745 over a period of 180 months. The total interest component will be Rs. 37.74 lakhs, so the interest to principal ratio over the tenure will be 75.5%.
- The third is scenario, wherein you opt for a 3 month moratorium but keep the EMI amount the same. In this case, your tenure extends up to 188 months, although the total monthly EMI will stay at Rs. 47,783 over a period of 188 months. The total interest component will be Rs. 37.74 lakhs, so the interest to principal ratio over the tenure will be 75.5%. However, the liability will continue for 8 additional months.
Based on this comparison, the call can be taken on the pre-EMI period.
How is pre-EMI different from actual EMI in loans for under construction property?
When a home loan is taken for under-construction properties, the bank typically charges interest on every disbursement made to the builder. That is because the bank will not disburse the full amount till the structure is fully done. Till then, to the extent of the loan disbursed, the bank will charge pre-EMI interest at the same rate as the home loan rate.
Once the actual EMI starts, the pre-EMI interest automatically ends. Pre-EMI is the simple interest payable on a home loan taken for an under-construction property. That’s because the loan disbursal by the bank is normally linked to the stage of construction completion.
This Pre-EMI period payment is pure interest and does not have any principal component. That means; when your pre-EMI period is completed, your principal outstanding is still intact.
The actual loan repayment, as regular EMI, will normally start only when the entire loan amount is disbursed to the builders which coincides with completion of the construction of the house.
Is there any tax benefit on the pre-EMI interest paid?
While there is no separate limit for the pre-EMI component, there is a provision wherein this can be claimed as a benefit as part of the overall interest exemption claimed. However, it will subject to the Section 24 limit of Rs. 2 lakhs per annum. The way it works is that the total pre-EMI interest paid by you can be amortized over 5 instalments once your actual EMI starts.
Take an illustration. Suppose you have paid pre-EMI interest of Rs. 40,000 in the 3 months prior to the actual EMI starting. Now suppose your monthly EMI on commencement of the loan is Rs. 22,000 of which your interest component is Rs. 14,000. Thus, your full-year interest utilized will only be Rs. 1,68,000 which you claim as exemption under Section 24. This leaves Rs. 32,000, which you can further claim as an exemption. So out of the Rs. 40,000 paid as pre-EMI interest, you can claim Rs. 32,000 as amortization in 5 instalments.
What are the points to remember for people buying under construction homes?
There are some basic points to remember when you buy under construction property in India.
- Check the reputation of the builder and the track record of being able to delivery home properties on time. Otherwise, your liability may be prolonged without getting possession of the property.
- Check for pre-approved loans. Having a bank giving pre-approved loans for a project speaks volumes about the genuineness of the project. Most banks do a thorough document check before giving pre-approval for a project.
- Do the background check of the property. Check if there are disputes, verify with the municipal authorities if the title is genuine, check for encumbrance certificate etc.
- Finally, negotiate with the builder for phased disbursal of loan in tandem with the property completion so that you are not overly burdened in the process.
Can I start full EMI property even before the property is completed?
That is an option always available to you and if you can afford. You can opt to start paying full EMIs on an under-construction property even before you get the possession of the property. This decision depends on your financial situation and the terms offered by your lender. If you can afford it then it makes sense to start the EMI early. Some borrowers choose to pay only the interest (pre-EMI) on the disbursed loan amount till the time the construction is completed.
Are there any advantages in buying an under construction property?
Actually, there are a number of unique advantages in buying an under construction property. Firstly, you can make modifications to the interiors based on your choice so you get more flexibility. Secondly, buying an under-construction property can be advantageous due to potentially lower prices compared to ready-to-move-in properties. Typically, with the RERA registrations having come in, the purchase of under construction property is a lot more regulated and easier for people. But it also comes with risks like construction delays, financial troubles at the builder etc. These are things you should check rigorously first.
Is there downpayment payable on under construction property?
Yes, there is down payment payable in under construction property and the actual percentage may vary from builder to builder. Typically, the downpayment for an under-construction property ranges between 10% to 30% of the property's value. That would vary based on the policy of the builder and of the lender. The upfront can also be reduced if you have loan approvals in place. Also, ensure that future payments are only made in sync with the construction stage completion of the project.