Everyone who has a plan of buying a house/flat from a builder would have come across this statement “No EMI Till Possession!”. But, what does it actually means? The answer will help you decide whether to take such offers provided by builders or not!

There is no doubt that this statement is a marketing strategy to attract more and more customers. Every builder would try to convince people to take his services through various offer, “No EMI till possession” is one such offer. This is also one of the most innovative and recent pitch applied by builders and people into real estate. Though it sounds very attractive and a great option, it is important to study about this offer in deep before making any type of investment. That being said, the real estate market in itself has to be given a very close look before investing in property.

First Time Home Buyer’s Guide

In order to promote the residential project, the financiers, builders and even customers will get into an agreement through this scheme. In such agreement, the builder is actually paying interest on the loan amount taken by the customer, until the property is transferred as per agreement. The tie-up between builder and financier helps in covering this interest part of loan between them before handing over the keys of your house. Until registration and occupation of the property, the customer can enjoy interest free loan through this scheme.

Customer’s Benefit: Until the construction of the property is complete, customer can enjoy interest-free loan amount. In other words, it is also a guarantee that the builder will not delay the construction completion as thing will work-out in a more scheduled manner.  The more the builder delays completion on construction, he will end up paying interest for the same period. As the principal value of the property remains the same, customer can enjoy appreciation benefits on the property. Those individuals who wish to own a house can definitely try this option especially if you cannot afford rent for existing house and EMI.

Pre- EMI v/s Full EMI – What You Should Know

Here EMI on the new house will start only after you move to the property. Thus rent will stop and you can start paying EMI instead. It is crucial to check the Base selling price (BSP) per square feet with the builder while getting into such deals. Customers will even get the advantage of customizing their property to a certain extent as per Vastu requirements and other benefits during the construction process.

Bank’s Benefit: Without any advertisements and other expenses, banks will get customers readily by signing up with builders on such projects. The regular return on loan provided will be available plus the chance of default is very minimal. As everything is through approved builders, processing and documentation will require less time and efforts. At times, customers are ready to take high processing fee and interest rates, considering the fact that they need not pay EMI till possession. Those who are in need of owning a house will try their best to grab such opportunities.

Builder’s Benefit: Instead of opting loan from commercials lenders, builders can make use of this option to fund their construction. It will also help in getting customers instantly. The interest which the builder will have to pay on the properties until possession is quite lesser as compared to the loan they get from commercial lenders. By the time the property is ready, customers are already available to occupy the same, thus the demand and supply curve will stay stable. Builder will be able to complete the project by just paying interest on the loans taken and can move onto a new project in ease.

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No EMI until possession scheme is also called as “subvention scheme”. Being property builder, all you need to pay is just 20% of the property value until possession. And the interest on the rest of money arranged will be paid by the builder directly to the financier. Customers who decide to grab this opportunity can also enjoy the benefits of planning their finance wisely. Customers can continue to pay rent until actually moving to the new house and then start paying the EMI post possession.

By just paying 20% of the property value, the customer can enjoy 100% of the property value appreciation. 20% of the property value will have to be paid at the time of booking and then EMIs will be held off until possession.  Most of such “No EMI till possession” projects will take 2-3 years for completion; by this time frame the property value will definitely be appreciated. Plus the property will be owned at very low price rate.

Benefits of the No EMI Scheme?

There are certain benefits of going with this scheme to buy a house, those benefits include:

Provides the opportunity for Sound Financial Planning
One can manage their finances in a better way by going with this scheme as, when you go with this scheme you need to pay the EMI towards your home loan only after you get the possession. Meanwhile till you did not get the possession of your new house you must be living in a rented apartment or home. So during this time, you don’t need to pay the EMI and you just need to pay the home rent of your current rented house. This reduces the burden which would have come by paying both rent and EMI together. This way you can save and plan your finances in a better way.

Timely Project Completion
When one goes for a no EMI till possession scheme for an under-construction project, the builders are the ones who are paying the EMIs on your behalf till they hand it over to you. This ensures the completion of the new residential complex (project) on time. Hence you need to worry about your possession time an all as, the EMI is going from the builder’s side and they will not want it to bear this for a long time and hence, they will complete the project and give the possession on time.

Good Appreciation Value
Since you just pay 20% of the property estimation as an upfront installment for your property, you have leverage until the point when you get ownership. Generally, most of the real estate project take roughly 3 years to get finished. 3 years down the line, normally there will be an increase in the value of that very particular property. Meanwhile, if you decide to sell the property, you will get a higher value.

Cash Payment v/s Home Loan for Your Dream Home

Having said all these, it is important to dig deep into the scheme structure. This will help you in understanding the terms and conditions of the agreement. Without going through these specifications do not strike a deal with the builders.  Buying a house is a big and one time investment for most of us, thus take time to do complete analysis and accordingly invest. At times, some builders will offer this scheme but might include the pre-occupation interest into the property value while quoting the price for the house.

Apart from this, another main factor to check is if the builder is stating a time frame to pay the interest on the EMI. In such cases, if the project is delayed, then the customer will be held responsible for paying interest on loan amount though the project is incomplete. Last but not the least, every customer should understand the risk that in case if the builder defaults to make interest payments, then financiers/ banks will hold you responsible for clearing the outstanding payments. The liability to clear debts will fall to the customer by default and the same will be mentioned in the terms and conditions with the financiers.

Risks you Need to Take Care About in This
Though there are many advantages of the ‘zero EMI’ scheme, still there are certain things that buyers should take care of-

  • Reading the fine print of the agreement with the builder very carefully. The cost of property may be higher in the zero EMI scheme, and as the buyer has to pay the interest for the period. That finance cost gets may increase, so it very important to check for the price.
  • The bank allows the home loan on the name of the buyer so in case a builder default in paying EMI will ultimately impact the credit score of the buyer. So, as a caution, the buyer needs to check his/her CIBIL Score regularly.
  • The Zero EMI till possession is generally valid for a fixed period time which is normally two or three years. The builder should hand over the property during this time only, if not the buyer had to pay the EMIs. So be careful before you choose the one.
  • Everything should be on papers and should be on agreement too which you are going to sign. Some of the Builders insist to keep some terms off the record and not clearly defined on papers. The buyer should but you avoid such thing and must insist the builder to have everything in written.
  • With some builders there is a certain period as the lock-in period, One cannot sell the property during this period or they have to pay some penalty. So, one needs to check for this also before you sign the agreement.

Use this piece of information to do all necessary groundwork and post through investigation invest your hard earned money in purchasing a dream house.

(Updated 18-06-2019)