Full EMI vs Pre-EMI

POSTED BY Kunal ON March 14, 2013 12:58 am COMMENTS (14)


I would be taking loan from SBI for 30L for construction linked plan and currently in progress.

If I get capacity to pre-pay, I shall do it.

Should I opt for pre EMI for full EMI ?

Will the principle be reduced in pre EMI plan? On full EMI will interest be calculated on disbursed amount?

If I take pre emi can I still contribute to pricipal amount and if yes, later when full EMI starts will bank calculate EMI on 30 – (part payed)

I do see simillar thread:


but not clear


Thanks in advance.

14 replies on this article “Full EMI vs Pre-EMI”

  1. ramp says:

    Hi Ashal,

    I had few queries related toSBI max gain, which you addressed last week.
    Now in this Max gain, i have query related to Pre EMI and Full EMI.
    For Pre EMI SBI Max gain – For the initial disbursement account, will I be able to do part payment?
    For Full EMI SBI max gain – Lets say initially around 8 lakh is disbursed out of complete loan of 60 lakhs. My understanding is that from the day one ..I have to pay EMI for 60 lakhs (around 60-65k) which includes only interest for 8 lakh and rest will be big principal component.
    My query is that lets say if I somehow do part payment for that disbursed 8 lakh. Then there is no Zero disbursement amount. In that case whether the EMI will contain complete principal component?

    Thanks for your valuable inputs.

  2. Kunal says:

    Hi Ashal,

    Looks like parking money in max gain with bank to disburse full 7L seems beneficial. I shall go through the other thread here discussed by you on max gain.

    Thanks again for prompt replies.

  3. Dear Kunal, the ROI in MOD ‘ll be between 7-8% or max 8.5% (after tax liability, it ‘ll go even down to 4.5-6% range), where as you ‘ll be paying 10% in your home loan. Now do tell me what’s beneficial to you. Parking money in MODs or Max Gain?



  4. Kunal says:

    Hi Ashal,

    Actually I was referring saving/salary account(MOD -under which they split into multiple deposits with higher interest rates).

    my concern was will the interest i get in savings on 7L be more that interest on 7L disbursed by bank?
    so if i ask bank to give 4L(~4k interest — (40K -4–> more principle contribution) this time, I will have to give 3L from savings. Will i gain from this?

    And this issue on only for this time, as I’ve some money and SBI can give full installment, next installment onwards the bank will give its percentage and I shall contribute from mine.

    So as I get, once loan account is opened, I can transfer my savings to that, so that I benefit from interest rate.

  5. Dear Kunal, parking money in SB account? I think you are asking for parking money into Max Gain account. Yes parking money in MG acct. is a good ideas as you w’d have liquidity of your own money.



  6. Kunal says:

    Hi Ashal,

    I’ve taken full EMI option, now the 2nd Installment to builder is of 7L, and I’ve 7L in savings til now with SBI – MOD account. SBI is ready to give 7L disbursement this time, will it be good to take entire amount from bank or contribute some from my savings? In which case the contribution to principle would be high (40k(emi) – x) where x is interest on disbursed amount.

    so basically, will parking money in savings account will be better than reducing x ?

  7. Dear TheZionView, thanks a lot for the additional point.



  8. TheZionView says:

    Just one more point in addition to Ashals

    If you Opt for Full EMI from day one after 2 years(ie after completion of house) you will have less than 8Y in the loan term because the disbursement of the loan amount will be in stages and you will be paying more as principle in your EMI than a interest.

    Hence it will be even less than 8Y after you get in the house..but the tax saving will be less until you can occupy the house

  9. Dear Ashish, just answer a simple question. If your loan was taken for 120 months (10Y) out of which you pay pre EMI for 21 months, how much time remaining is there for your loan repayment? Is it 99 months or do you still thinks it should be same 120 months?

    The correct answer is 99 months. Now do tell me, repaying your loan in 120 months or 99 months, where the EMI w’d be higher?

    The basic explanation given by dear Sushant above regarding the full EMI from day one is perfect.



  10. Sushant K says:

    Hi Ashish,

    I have a pending answer to be posted on another thread related to tax benefit on principal before construction on Ashal’s request to read but I am still confused on that part. I will make up for that delay by answering the query here.

    On a serious note, It goes like this… if you start your EMI on say 1st Jan 2015 the first EMI will have intrest for a month on full amount , say x. and remaining part of emi = ( EMI – x) will go towards principal repayment.

    If you start the FULL emi now itself, the intrest part of your first EMI would be for the “loan amount disbursed till date” say y. The value y will be much less than x ( as x was on full amount, y is on 1st disbursement amount). the remaining amount ( EMI-y) will go towards principal.

    This cycle will go on 2nd month and so on… and you keep paying more principal in full EMI approach.

    So, In 21st month from now you would have reapyed much more princiapal than what you would pay in 21st month if u start on 1st jan 2015. Hence overall tenure is reduced, may be an year or so, depending on intrest rate and EMI.


  11. Ashish says:

    Dear Ashal,

    While reading your response above, I would also like to know something on the similar lines.

    As you stated ” the final EMI after completion of pre EMI ‘ll be a higher one as the remaining term in your loan ‘ll be very less some where around 8Y”

    Why the loan term will reduce to around 8Y after completion of pre-EMI, instead of the full term of 10 years? Getting confused on this. Please clarify?

    I am asking this as I have also taken a regular term loan from HDFC and pre-EMI has started. The apartment completion will take another 21 months to complete and full disbursement shall happen within this time period.



  12. Dear Kunal, please opt for full EMI from the day one. the reason is – as your loan is only for 10Y, the final EMI after completion of pre EMI ‘ll be a higher one as the remaining term in your loan ‘ll be very less some where around 8Y. Think over it.



  13. Kunal says:

    Hi Ashal,
    I would be opting for max gain. The payment capacity I take over sometime and not at this point of time.
    Yes, paying full EMI will reduce my interest outgo.
    I wanted to know if I take pre-emi, does it by self contribute to principle or can i contribute?
    Apmt will take 2 yrs to complete. And loan would be for 10 yrs.

  14. Dear Kunal, is it regular term loan or max gain you are discussing here. If you do have capacity, paying full emi from day one ‘ll be helpful to save on interest outgo over the period of loan.



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