Its better to go in for a loan which is a mix of both. This is called construction linked EMI. IN this case the EMI you pay to the bank changes (increases) after each disbursement. This has the advantage of starting re-payment with the first disbursement with having to pay the full EMI intially.
As you said,pre EMI option is good when completion of project is far away i.e 1.5 to 2 years.So that builder will have to meet the deadlines.But if you are going to possess the flat/house within 7 to 8 months period and the project is nearing completion,it is better to choose ADF option.In this case we normally have to give 80% money to builder from bank assuming most of the work completed.In this case,The difference between EMI and pre-EMI will not be much.So why extra money for the 7 or 8 months which won't be included in your EMI amount.
I absolutely agree with the observations of Adroit; ADF results in we financing the builder especially if the expected date of possession of flat/home is few months away and not immediate. Most people miss out on the fact that the borrower needs to pay interest only on the amount so far disbursed if one opts for pre-EMI. The word Pre-EMI itself miss leading. The correct word should be interest during moratorium; The most crucial aspect many a home aspirant tends to forget is that "THERE IS NO TAX BENEFIT DURING CONSTRUCTION PERIOD OF THE HOUSE". If one opts for for ADF, there is likely cash flow problems during that period as one needs to make various small changes in the flat/home apart from what the builder is giving to suit individual requirements for which payment has to be made immediately apart from EMI plus tax and one may end up having personal borrowings from credit card companies during that period. Also, many of us would be prepaying our housing loans and Pre-EMI hardly affects us in the end. When I went for a housing loan, I convinced my husband to opt for pre-EMI and now we are happy with our choice.
I opted for the scheme where I am paying EMI from day 1 but the builder is getting a part of the loan. Approx 65% of the loan amount was paid in the first month, but for my EMI, the interest was calculated on the amount disbursed, and hence I could pay up a larger part of the principal as well. Kindly have a look at the following figures on a monthly basis. Loan Amt: 20.5 lakhs, initial rate 7.25, EMI = Rs 24,068, rate changed to 7.75 from the 5th month.
Where are you going to get RS 3,24,000 to invest for 24 months...answer this first & then give further suggestions.. There is no way you going to gain 16 Lack...ADF is definitely better..
RE:RE:Pre-EMI
by on Apr 17, 2008 03:01 PM Permalink
Hi,
We are plannign to take a property in Chennai and the buider is Purvankara ( a reputed A class builder). The completeion date is May 2010. The loan amount is 40 lacs. We are looking at the ADF(full dispursement ) vs Tranche EMI otions.
Incase of full dispursement the builder has promised a discount of 8% which comes to around 4 lacs which is actually good as the loan amount itself is very huge.
But we are not aware of the further complications that might arise of full dispursement. Can any of you please guide us by answering the following questions:
1. In the worst case scenario that the builder stops the project, is there any guarentee that he would return s back the amount? 2. What sort of written documentation is required from the builder for making a full dispursement ? 3. Is there any legal binding for the same ? 4. Are there any existing home insurance policies which insure your under construction property against builders attrocities ? 5. Should we take care of anythign else apart from the normal care that we take when buying a house ?
It would be really good if you could answer my queries asap as we are planning to go for a loan in about a week. Thanks a lot .... Sandhya
