Difference Between Pre EMI vs Full EMI - Which Option is Best For You?

pre emi vs full emi in home loans

6 mins reading

Last updated on 12th January 2024

When diving into the world of home loans, you're often faced with a pivotal decision: choosing between Pre EMI and Full EMI. But what's the real difference between 'pre emi vs full emi'? Pre EMI is an option where you only pay the interest on the loan amount until your property is ready. On the other hand, with Full EMI, you start repaying both the principal and the interest right from the get-go.

Now, you might wonder, how 'pre emi on home loan' works, what are the implications and benefits. Throughout this article, we'll delve deep into these topics, ensuring you have a clear understanding of 'full emi vs pre emi' and can make an informed decision. 

What is Pre EMI?

The concept of Pre EMI revolves around paying only the interest component of the loan until the property is ready for possession. It doesn't reduce the principal amount, which means the actual loan amount remains untouched during this period. This option is often chosen by those who are buying under-construction properties and want to minimize their immediate financial burden. 

What is Full EMI?

Unlike Pre EMI, Full EMI involves repaying both the principal and the interest from the very beginning. This means you start reducing your loan amount right from the first EMI. It's a preferred choice for those who've purchased ready-to-move-in properties or for those who want to clear their loan faster. 

The Financial Implications of Pre EMI Interest

One of the most significant aspects to consider is the 'pre-emi interest on housing loan'. Since you're only paying the interest and not touching the principal, the overall interest paid might be higher in the long run compared to Full EMI. However, it does offer a lower initial payout, which can be beneficial for some.

Benefits of Full EMI over Pre EMI

When comparing 'full emi vs pre emi', the Full EMI option often emerges as the more financially sound choice in the long run. It allows borrowers to start reducing their principal amount immediately, leading to a quicker loan clearance. Moreover, the total interest paid over the loan tenure is generally lower compared to Pre EMI. 

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Tax Implications and Deductions

A crucial aspect to consider is the 'pre-emi interest on housing loan deduction'. While both Pre EMI and Full EMI offer tax benefits, the deductions might vary. The Income Tax Act provides deductions on the interest paid during the Pre EMI phase, but it is spread across five years after possession. On the other hand, Full EMI payers can claim deductions on both principal and interest amounts annually.
It's essential to consult with a tax advisor to understand the nuances and optimize your tax savings.

Pre EMI's Advantages

One of the main attractions of Pre EMI is the reduced home loan EMI strain during the initial phase of the loan. Especially for those who are simultaneously managing rent and loan, this option can be a breather. However, it's essential to remember that the principal remains untouched during this period. 

Long-term Financial Planning with Full EMI

Opting for Full EMI can be a cornerstone for long-term financial planning. By chipping away at the principal from the start, you're setting yourself up for reduced liabilities in the future. It's a step towards financial freedom and owning your property outright sooner.

Impact on Credit Score
Your choice between 'pre emi & full emi' can also influence your credit score. Regular and timely Full EMI payments can boost your creditworthiness, while prolonged Pre EMI might not have the same positive impact since the principal remains static.

Flexibility in Repayment Options
Both Pre EMI and Full EMI come with their own set of flexible repayment options. From part-prepayments to loan tenure adjustments, understanding these flexibilities can help in managing the loan more efficiently.

The Psychological Aspect
There's a psychological comfort in knowing that with every Full EMI payment, you're inching closer to full ownership. On the other hand, Pre EMI can feel like you're only servicing a liability without making a dent in the actual loan amount. This mental aspect, though intangible, plays a significant role in the satisfaction derived from the loan repayment process.

The Role of Down Payments in EMI Choices
The amount you put down as an initial payment can significantly influence your Pre EMI and Full EMI decisions. A higher down payment can reduce your loan amount, making Full EMI more manageable. Conversely, a smaller down payment might make Pre EMI more attractive due to the initial reduced outflow.

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Interest Rate Dynamics: Fixed vs Floating

Your choice between 'pre emi vs full emi' can also be influenced by the type of interest rate you opt for. With fixed interest rates for home loan, your EMI remains constant, making budgeting easier. However, with floating rates, as the rates change, so can your EMI amounts, which might make Pre EMI more appealing for some due to its predictability in the initial stages. 

The Impact of Loan Tenure on EMI Choices 
The duration of your loan can play a pivotal role in your EMI decision. Longer tenures can reduce monthly outflows, making Full EMI seem less daunting. However, it also means paying more interest over time. Shorter tenures, while leading to higher EMIs, can result in substantial interest savings.

Pre EMI and its Influence on Property Value Appreciation
One argument in favor of Pre EMI is the potential for property value appreciation during the construction phase. If the property's value rises significantly by the time it's ready for possession, the interest paid during the Pre EMI phase can be offset by the appreciation, making the overall financial proposition more attractive.

Related Post: Home construction loans

The Role of External Economic Factors 
External economic factors, such as inflation, economic downturns, or policy changes, can influence the 'pre emi vs full emi' decision. For instance, during economic downturns, job security might become a concern, making the lower initial outflows of Pre EMI more appealing. On the other hand, during booming economic times, one might feel more confident in opting for Full EMI.

The Builder's Credibility and Pre EMI
When opting for Pre EMI, it's crucial to consider the builder's credibility. Delays in construction can extend the period you're paying interest for without reducing the principal. Choosing a reputed builder can ensure timely completion, ensuring that your Pre EMI phase doesn't extend unnecessarily.

Future Financial Goals and EMI Choices
Are you planning for significant future expenses like higher education or a wedding? Your EMI choice can influence your financial flexibility. Pre EMI can offer more leeway in the initial years, allowing you to allocate funds to other immediate goals. 
The intricate dance between Pre EMI and Full EMI is more than just monthly payments. It's a reflection of your financial strategy, future goals, and market dynamics. By arming yourself with knowledge and understanding the nuances, you can stride confidently on your home loan journey, making choices that resonate with your financial narrative.

Published on 22nd August 2023