Friday, January 12, 2007

Save on pre EMI interest

EMI payments on a housing loan do not start before complete disbursement. If the loan is disbursed in multiple installments, banks charge pre EMI interest till the date of first EMI. Pre-EMI payments are pure interest - they do not contribute towards loan repayment. A 10 lakh loan at 10% interest will attract a daily pre-EMI of Rs.274 (10% * 10 lakh / 365 days). That's about 8200 rupees a month. Worth saving, isn't it?

Try to go in for single disbursement. Even here, there is a catch. Generally there is a fixed date at the start of every month (say the 1st of each month) to start off your EMI cycle. If you take your single disbursement cheque on the 15 of Jan, your first EMI can only start on 1st Feb (at least two of the biggest home loan companies say so, I suspect this is a way of making easy money). Therefore you will be charged pre-EMI interest for 16 days (15th Jan to 1st Feb). The only way to escape this is to take disbursement on the 31st of Jan (basically one day before their regular monthly date). Often, the consumer is made aware of this at the last moment (when the property seller is hassling him for payment) and he cannot delay the disbursement. So he ends up writing an extra unforeseen cheque.

Hope this saves you from getting milked.

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