Disbursement in under-construction property: Pre-EMI
Disbursal is the final step that happens once the loan is sanctioned and approved. When a Home Loan is taken on an under-construction property, the entire loan amount is not disbursed to the builder at once. Instead, the disbursal happens in parts on the basis of the completion of the stages of construction by the builder.
During this stage, the borrower doesn’t have to pay the full EMI (Principle +Interest) on the sanctioned loan amount, but has to pay an interest amount only called the Pre-EMI. The Pre-EMI is the interest calculated only on the amount that has been disbursed to the builder, as per the stage of construction.
Let’s take an example to understand a Pre-EMI further: If you have taken a loan of Rs 30 lakh at 8% p.a. At the start of construction, supposing your bank only disburses Rs 3 lakh to the builder, your pre-EMI will be calculated as interest on the Rs 3 lakh, i.e. Rs 2,000/month. As construction progresses, more funds are disbursed and the Pre-EMI increases proportionately. Say, if an additional Rs 3 lakh is disbursed to the builder after 6 months, now the Pre-EMI will increase accordingly to Rs 4,000/month.
Unlike the Pre-EMI, the EMI that you will pay consists of the principle and the interest amount. Once construction is completed on the property, the entire sanctioned loan amount is disbursed to the builder. Now, your actual EMI cycle starts and accordingly the principle balance of repayment starts reducing.
You can also opt to start paying the EMI amount after your first disbursal, in under construction projects, however, you have to make this choice know to the lender before disbursal.
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