Pre EMI vs. Full EMI: Understanding the Key Differences

Purchasing a house is one of the major milestones in an individual’s life. While the idea of paying for your dream home may sound very appealing, it is not always possible due to a variety of factors. In such a scenario, availing a home loan is undoubtedly the best option to finance your purchase. This allows you to pay for a house without putting an unnecessary financial burden. You can obtain a loan as per your requirement and pay it back over a period of time.

Table of Content

• What is Pre-EMI in a housing loan?
• What is Full-EMI in a housing loan?
• Pre-EMI vs Full EMI: A Detailed Comparison

When it comes to repayment of a home loan, pre-EMI and full-EMI are two major options you have. Both these repayment options can be opted for in different scenarios and have their own set of advantages. To ensure that everything works smoothly, it is important to have a clear understanding of these two types of EMI things and then make a decision according to your needs.

Here is the definition of pre-EMI and full-EMI, the benefits they offer and how they are different from each other.

What is Pre-EMI in a housing loan?

A pre-EMI means a monthly payment that is being made against your home loan and only includes the interest component. With this type of EMI, you don’t pay any part of the principal amount of your loan. This interest component is calculated on the amount disbursed to date and not on the full loan amount. As a result, the amount you have to pay every month is also significantly lower than the actual EMI. Generally, an individual can choose to pay a pre-EMI only when the property you’ve obtained a loan for is under construction. Once the construction is completed, you cannot avail the option of pre-EMI.

Suggested Read: EMI Understanding the Term

What is Full-EMI in a housing loan?

A full EMI refers to the regular monthly payment that you need to make against a housing loan. This type of loan EMI comprises both interest and principal components. Usually, these EMIs start when the property construction is completed and the entire loan amount gets disbursed. As compared to pre-EMI, the amount of full-EMI or regular EMI is significantly higher.

Pre-EMI vs Full EMI: A Detailed Comparison

Here is a detailed comparison between pre-EMI and full-EMI, depending on various factors:

EMI amount

If you opt for a pre-EMI for your home loan, the monthly payable amount is a lot lower for the first few months, as this type of EMI only includes the interest component. The EMI amount will increase only when the entire loan amount gets disbursed and then the regular EMI starts. On the other hand, if you choose to pay full EMI, you have to pay a higher amount from the beginning, as this EMI includes both interest and principal components.

Total Payable Interest

In pre-EMI, you don’t make any payment towards the principal amount during the initial phase. This has a significant impact on the total interest that is applicable to your loan. With a full EMI, you start repaying the principal amount from the first instalment. This automatically reduces the total payable interest and results in a lesser financial burden.

Cash Flow

Opting for a pre-EMI can prove to be very beneficial if you’re experiencing a temporary cash crunch. This type of EMI is known to offer better short-term cash flow because of the lower EMI in the initial period. Full EMIs, on the other hand, have a higher instalment amount, which can put some pressure on your cash flow.

Total Property Cost

Since the payable interest of your home loan gets higher with pre-EMI, the total purchase cost of your property also increases. When you choose a full EMI, you pay a smaller amount as interest on your housing loan. This results in a lower purchase cost of the property and allows you to yield higher profits while reselling the house.

Tax Benefits

While paying pre-EMI for a home loan, you can claim tax benefits only on the interest component. But you will not get any tax benefits on the principal amount, as you are not making any payment against it. But with full EMIs, you’re eligible to claim tax benefits on both the interest and the principal components. This results in a higher tax saving.

Suggested Read: Know Your Income Tax Benefits On Home Loan

Pre-EMI and full EMI are two popular repayment methods for paying back your home loan. Making a choice between these two options entirely depends on your financial situation, cash-flow needs, and long-term objectives. It is always recommended to pick one that aligns well with your financial goals and liabilities. At Muthoot Finance, we offer quick and hassle-free housing finance at highly competitive interest rates. Whether you’re planning to apply for a home loan, personal loan or any other type of finance, our team of finance experts will provide you with complete assistance. For more information, you can also visit your nearest Muthoot Finance branch.