In order to attract more and more customers the housing financiers come with several innovative schemes from time to time. One of such schemes which many borrowers are offered with is called the “No EMI till possession”. Though it might sound an extremely convenient option one needs to study a bit deeper to appreciate the true implication of such a scheme. There are certain speculative impacts of such schemes on the real estate market which also deserve a closer look.
Understanding the Scheme
This is scheme in which the developer, financier and the customer get into an arrangement in order to promote the project. In this scheme the developer ties up with the financier to pay the pre EMIs through the customer. In effect the developer is actually paying interest on the loan amount till such time the property is handed over and the actual EMIs commences. Here the builder pays for the interest which in turn eases some burden off the customer till such time the property is ready for registration and occupation.
Bank’s Benefit: The bank gains by readily getting more customers without much effort in advertising and also has lesser processing time. The banks may even levy higher processing fees and a higher interest rate for scheme which the customer is ready to pay keeping in mind the no EMI advantage.
Developer’s Benefit: Gets instant customers and is actually using the funds from the banks as home loans to customer to progress construction instead of securing money from commercial sources. Thus the actual interest borne by the developer is much less than compared to what he would have paid for commercial loans. By paying only the interest part of a home loan the developer is able to complete the project on time and move on to a new one.
Customer’s Deal: The customer doesn’t pay for the interest of the money burrowed till such time the construction is complete. This arrangement also ensures that the developer is less likely to delay the project as he continues to pay the interest on behalf of the customer. The customer can take advantage of the appreciation in property value as his principal amount remains the same. It is more suitable for customers who cannot pay the EMI and house rent simultaneously. They move into the house when it is ready and then start paying EMIs instead of rents. However the developer may charge a higher Base Selling Price (BSP) per square feet for such schemes.
Illustration:
(Assuming the property has a size 1000 Sq. Ft with a loan at the rate of interest of 8.5% and repayment tenure of 20 years for the loan.)
| Payment plan | Down payment | Construction Linked payment | NO EMI |
| Price BSP (Rs/Sqft) | 2600 | 2800 | 3000 |
| Total cost (Rs.) | 2600000 | 2800000 | 3000000 |
| Interest paid by Builder | Nil | Nil | 155431 |
| Total Interest cost | 2381767 | 1917405 | 2117124 |
| Loan Amount | 2200000 | 2380000 | 2550000 |
| Effective cost of Flat | 4581767 | 4297405 | 4511693 |
| Actual cost of Flat | 4581767 | 4297405 | 4667124 |
Analysis of the Illustration
- The down payment plan of payment is the costliest for the customer.
- The construction linked plan is the cheapest for the customer.
- The No EMI plan is costlier than the construction linked plan though some amount of it offset by the developer making it slightly cheaper than a down payment plan.
Keeping the results of the above sample in mind one can understand that the “No EMI till Possession” is not as convenient as it sounds.
Hi, I have two doubts:
1. Under No EMI till Possession scheme, whether builder directly pay the interest to the banks account or builder will transfer the money to buyers account and then the buyer is responsible to pay to the bank?
2. Whether this scheme is approved formally by the government, or government had defined some law with respect to this law?
Hi Vishal,
Thanks for writing to us. Here are your doubts answered:
1. Under ‘No EMI till possession’ scheme the developer ties up with the financier to pay the pre EMIs through the customer. In effect the developer is actually paying interest on the loan amount till such time as the property is handed over and the actual EMIs commence. Here the builder pays for the interest which in turn eases some burden off the customer till such time as the property is ready for registration and occupation.
2. This is a scheme offered by builders and is not approved by any law or Government authority.
Cheers,
Team BankBazaar
A very educative piece of information which would benefit the novices in purchasing a home and can reduce ( unnecessary) cost.
Hi MK Das,
Thank you. Please keep reading our blog for more on personal finance.
Cheers,
Team BankBazaar
No EMI till possession scheme
In this scheme
The cycle of interest on loan till possession is developer customer and then bank
Is this the right step
If not please let me know the right payment cycle.
Hi Nikam Jyotsna,
Usually in case of no EMI till possession, the builder will pay the interest on your loan. Please check with your builder as to how this scheme will work.
Cheers,
Team BankBazaar
Hello Team,
Could you please give some insight over the TDS which Builder deducts while repaying the EMI’s to Customer.
As I have doubt in the process for e.g Bank deducted EMI from customer account (Rs 10000) but when builder is preparing cheque he is deducting TDS (12.5%) and giving cheque of Rs 8750.
Need an urgent response
Thanks and Regards
Mohita
Hi Mohita,
We are sorry but we are unable to understand your qeury. Can you please let us know to whom the builder is paying this amount to? The loan amount is paid by the bank to the builder and the customer pays the EMIs.
Cheers,
Team BankBazaar
Hi,
Let me explain what Mohita is trying to Say. When a builder says that he will pay the interest/EMI on behalf of Purchasers, he implements following scheme.
1. He asks the Customer to pay the EMI/Interest to the bank and get the acknowledgement receipt from the bank.
2. Then the Purchaser has to show that receipt to the Builder and then builder give back the amount mentioned in the receipt to the Purchaser.
In Mohita’s situation, she says that the Amount deducted as an EMI from her account is 10,000/- and when she claims the said amount from the builder, the builder returns her money by cheque but he deducts the TDS at the rate of 12.5% from that 10000 and actually gives Rs. 8750/-.
Is this a right process? Aren’t the builder is supposed to give whole Rs. 10,000/- ?
Hi Atul Phatak, This will depend on the terms and conditions as mentioned by the builder. Since the facility is offered by the builder, the builder will set the terms and conditions. It is best to check with the builder as to why TDS is being deducted. Cheers, Team BankBazaar
Hi
I am looking to buy property under “No EMI Till Possession”, however banks agent are saying that in this scheme i have to may interest. please advise what can I do in this scenario.
Regards
Mayank
Hi Mayank Dwivedi,
This is purely dependent on the bank that will be sanctioning the loan to you.
Cheers,
Team BankBazaar
Hi Team,
If we buy flat for 68Lakhs and as builder is providing both options like no emi till possesion and early emi too…so during this how much amount we can save in case of no emi till possesion
Hi Disha, Thanks for stopping by. If the builder is paying the EMI, you will save interest on your loan. The amount you will save will depend on the interest rate of the loan. Hope this helps! Cheers, Team BankBazaar