Updated on October 4, 2023
The concept of pre-EMI is typically used in the case of home loans. The meaning of this term and its related entails are given hereunder.
Meaning of Pre-EMI
Pre-EMI, short for Pre-Equated Monthly Installment, is a concept particularly relevant to property loans in India, especially for under-construction properties. It represents the partial monthly payments made by borrowers on their home loans before the actual equated monthly instalment (EMI) payments begin.
How does Pre-EMI work?
When you purchase an under-construction property, the total loan amount sanctioned by the lender is not disbursed to you all at once. Instead, it is released in stages based on the construction progress of the property. During the construction phase, you are required to make these smaller, interest-only payments known as Pre-EMIs.
Pre-EMIs are calculated based on the amount of the loan disbursed by the bank up to that point and the prevailing interest rate. Since they only cover the interest portion of the loan, they are generally lower than regular EMIs, which include both interest and principal repayment.
Why is pre-EMI important?
Pre-EMI is important for borrowers, especially for property loans in under-construction projects, because it helps them manage the interest costs associated with the disbursed loan amount during the construction phase. It offers financial flexibility by allowing borrowers to make smaller, interest-only payments initially, which can be more manageable than full EMIs. Pre-EMIs also facilitate effective budgeting and ensure that the loan tenure commences early, aligning with the property’s construction progress. Understanding pre-EMIs is essential for individuals planning to invest in such properties, as it enables them to make informed decisions about their loan commitments and financial planning.