Smart things to know: Pre-equated monthly instalment on property loan

1. Pre-EMI enables a borrower to pay interest on the loan disbursed before the possession of property. The regular EMI on a loan starts after possession.

2. Pre-EMI is smaller than a regular EMI as it only covers the interest of a home loan. This helps when the borrower is paying rent while waiting for possession.

3. If the construction is delayed, leading to an extended pre-EMI period, the borrower benefits from a lower repayment burden, but a higher overall interest cost on the loan.

4. A borrower can choose to pay the pre-EMI and save the difference (compared with the full EMI), thus bringing down the liability at a later date.

5. Pre-EMI is eligible for tax deduction as interest on home loan, but starts only after possession and in five equal instalments.

6. If EMI payments are started before possession, the overall cost of loan is lower. Pre-EMIs are more of a cash management tool during delayed construction.

The content on this page is courtesy Centre for Investment Education and Learning (CIEL).