Tranche EMI – Reduce Effective EMI with Tranche Based EMI Repayment Plan

Tranche EMI – Reduce Effective EMI with Tranche Based EMI Repayment Plan

tranche-based-EMIHome finance today is a buyer’s market . The hugely competitive home finance market has forced lenders to offer flexible repayment schemes to the borrowers to suit their individual needs and requirements. Banks and financial institutions have been customizing their loan offering in such a way that prospective borrowers find it suitable to their pockets to pay the EMI and reduce their interest burdens.

Under Construction Property – The Special Case

In case of under construction properties, the disbursal of the loan amount is based upon the level of construction. The builder gives construction certificates based upon which the banks release the installment of the loan amount.

The borrower is expected to pay pre-EMI money on a regular basis to the lender. Actual EMI payments only start after the property is ready. This situation is beneficial for those borrowers, who are not in a position to pay a large amount in the beginning, but expect that their salary levels will rise in near future and they will be able to sustain the payment of the EMI amount.

Tranche Based EMI – An Innovative Repayment Option For Reduction Of Interest Burden

Tranche based EMI is one such innovative repayment plan, which is suitable for borrowers who have sufficient funds and income levels to pay right from the beginning. Tranche based EMI option allows you to start making payments right after the disbursal of the first installment of loan amount and continue to pay till the property is ready and the regular EMI starts.

Tranche based EMI is not offered by all the lenders and banking institutions. You have to check with your lender if they allow it. Most of the lenders allowing Tranche EMI accept initial payments with a minimum amount payable as the interest on the loan amount drawn till that day. Anything over and above that goes towards the principal repayment. Lenders are flexible and often allow you to fix the installment as you wish to pay.

As you might have noticed, Tranche based EMI is an excellent way to reduce your outstanding loan principal by the time your property is ready and actual EMI repayment starts. Let us make it more clear by taking an example.

Example Calculations for Tranche Based EMI

For simplicity let us assume…

  • Loan amount = Rs. 30 lakhs
  • EMI = Rs. 30,000 per month
  • Loan period = 15 years
  • Period of construction = 36 months

In this hypothetical case, if you start Tranche EMI right from the beginning, then you would have paid Rs. 30,000 x 36 = Rs. 10,80,000 by the time your property is ready and actual EMI start.

Out of this amount of Rs. 10.8 lakh, approximately Rs. 9 lakhs would have gone towards repayment of the principal and only Rs. 1.8 lakh might have gone towards the interest payment. This would effectively reduce your outstanding prinicpal balance to 30-9=21 lakhs at the time your property is ready.

This will mean that you have to pay an EMI of about Rs. 20,000 every month for the balance 12 years of loan period. Further this might have resulted in a huge reduction of your interest burden.

Tranche based EMI is thus an excellent way to save your total interest outgo and is most suited for the people going for buying and under construction property and have sufficient income levels to sustain EMI payments right from the beginning.

Related: Pre-EMI Calculation for CLP Based Under Construction Properties

6 Comments
  1. Can u publish a tranche based emi calculator in excel ?

    • Hi Nitin,
      Calculations in case of a Tranche Based EMI is no different. You can use the simple EMI calculator easily in this case also.

      • But simple emi calculator will not show how much principle has come down as it assumes the loan disbursement happened at the start and not on a phased manner. wish if there is a calculator which give option to add date of disbursement and amount and gives break up of principle and interest.

        • Hi, Even I am looking for a good excel based Tranche Based EMI Calculator.
          Kindly share if you have one.
          Aarti

  2. Could you please give a calculator for “Tranche Based EMI”?

    Thanks,
    Jetendra.

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Lots of approximations and assumptions have been made while developing the calculators.

Please make your own calculations before making any financial decision.