You need to pay only interest on loan for under-construction properties

I have been sanctioned Rs20 lakh home loan from LIC Housing Finance. But for now, LIC has released a cheque for Rs12 lakh as per the status of construction work by the builder. So what will be the EMI for Rs12 lakh?
In case of loans taken for under-construction properties, the lender generally charges you interest on every disbursement made to the builder. This interest is called pre-EMI. The rate of interest is defined in the loan agreement and is normally the same as its regular interest rates on home loans. Pre-EMI is the simple interest payable on a home loan taken for an under-construction property where the loan disbursement is linked to the construction plan. It starts from date of disbursement of the loan.

This amount of pre-EMI payment does not have any principal component. The actual loan repayment as regular EMI will normally start only when the entire loan amount is disbursed to the builder. Some lenders may allow you to start paying the EMI’s separately for each tranche of loan disbursed. The repayment will be based on the option (EMI or pre-EMI) you have selected. Please note that you will not be able to claim any income tax benefits in respect of any payments made during the years in which the property is under construction.

The writer is CEO, Apna Paisa, a price & features comparison engine for loans, insurance and investments. He can be reached at hrdna@apnapaisa.com.