How can you avoid paying full EMI till Property Possesion? Here is the hack
Avoid Full EMI Till Possession – Smart Home Loan Hack!
If you are living on rent and planning to buy an under-construction property but don’t want to bear the burden of rent and EMI at the same time, then you are at the right place.
In this blog, we will talk about Tranche EMI, which allows you to pay only interest — that too in small parts — until your property gets possession. It saves you from a huge EMI burden with minimal interest payment.
Let’s see what it means, how it works, and who should opt in for this.
What Do We Mean by EMI Tranching?
The word "tranching" originates from French, which means “parts or slice”. In financial terms, it also means the same. Tranche EMI helps you to get your home loan disbursed in parts. And you only pay interest on those parts until the full home loan gets disbursed, which happens when the property is completed.
This means you don’t pay the full EMI like in a traditional home loan — but just the interest, and that too only on the small disbursed parts of your loan amount. Let’s understand it with an example.
Tranche EMI Calculation
Suppose you opted for an EMI tranching plan, which is only available for under-construction properties. Under this plan, the bank releases funds in smaller parts.
If you take 50 lakhs as a home loan:
The bank will release 10 lakhs at the time of the property’s foundation. So under the EMI tranching facility, you just have to pay interest on those 10 lakhs — not the full EMI (which includes principal + interest on the total loan amount).
After 1 year, the bank releases an additional 20 lakhs. Now, you have to pay interest on 30 lakhs in total. Later, the bank releases the remaining 20 lakhs. Now the total 50 lakhs is disbursed, and you pay interest on the full amount — but still not the full EMI — until the property gets the completion certificate.
As soon as the property receives the completion certificate, you will be liable to pay the full EMI, including both principal and interest. This facility is called Tranche EMI.
Problems Associated with Tranche EMI
The biggest problem with this EMI option is the increased financial burden. While it helps reduce the EMI load during the construction phase — especially for those who are also paying rent — it also increases your overall financial burden. Let’s understand how.
During the period when you are paying only interest, your principal amount does not reduce. Suppose your 50 lakhs home loan starts reducing once you pay full EMI — it becomes 49, 48, 47, and so on. But during the tranche EMI period, it actually remains the same.
Because you are only paying the interest part, not the principal. This becomes an additional burden on your overall repayment. Also, this burden increases further if the property’s possession gets delayed.
Who Should Opt for Tranche EMI?
Anyone who is not afraid of increased financial burden but prefers convenience for a short time can go for this Tranche EMI option. Especially those who are living on rent, as they can’t afford to pay both rent and full EMI at the same time.
But it is advisable to first try to fund your property through savings or other means and avoid taking such loans, as these include huge additional payments as interest and can cost you much more than they should.
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