If my property's construction gets delayed, how does it affect my home loan disbursal and EMI payments?

I’ve recently booked an under-construction property, and my home loan is being disbursed in stages as the construction progresses. However, I’m worried about what happens if the construction gets delayed. Will the bank stop releasing the remaining loan amount, and could this put me in financial trouble? Also, since I’m currently paying Pre-EMI on the disbursed portion, does a delay mean I’ll be paying interest for longer without moving into the house? At what point do banks start full EMIs, and how can I protect myself financially if the project faces prolonged delays or risks getting stalled?

Advice by Pankaj Gadgil, MD & CEO, Aditya Birla Housing Finance

If you’ve booked an under-construction property, a construction delay can directly impact your home loan and EMIs. Since banks disburse loans in stages linked to construction progress, any delay can stall further disbursals. You may end up paying Pre-EMI (interest on the disbursed portion) for longer, increasing your interest outgo. In some cases, banks may even start full EMIs (principal + interest) after 2–3 years, regardless of possession. Delays also push back tax benefits under Sections 24(b) and 80C, while prolonged or stalled projects could leave you repaying a loan on a home that isn’t delivered.

Let me explain step by step:

Q: How do construction delays impact loan disbursal?

A: For under-construction properties, banks usually release home loans in a stage-wise manner, aligned with construction milestones and payment schedules. If construction is delayed, subsequent disbursals may also be postponed.

In some cases, if the delay is significant, banks may reassess the project’s viability. Should the lender consider the project high-risk, further disbursals could be withheld or paused until the situation is resolved. This is especially common in projects with repeated delays or financial instability on the developer’s part.

Q: Will delays affect my EMI payments?

A: Yes, delays can impact both the Pre-EMI phase and the commencement of full EMI payments.

Pre-EMI Phase: If the full loan amount hasn’t been disbursed, you typically pay interest only on the disbursed portion. Construction delays can prolong the Pre-EMI period, increasing your total interest outflow even before you move in.

Full EMI Commencement: Some banks start full EMI payments (principal + interest) after a fixed period, often 2–3 years, regardless of whether you’ve taken possession. This means you may begin repaying the full loan amount while the property is still under construction.

Q: What are the financial risks of construction delays?

A: Construction delays can increase costs and create financial strain in multiple ways:

Higher Interest Burden: Extended Pre-EMI periods increase your cumulative interest outgo, making the property more expensive in the long run.

Delayed Tax Benefits: Tax deductions under Section 24(b) (interest) and Section 80C (principal repayment) are only applicable after possession. Delays postpone these benefits, affecting your overall tax planning.

Stalled Project Risk: In extreme cases, if construction is indefinitely halted, you may be obliged to repay the loan for a property you haven’t received, creating both financial and legal challenges.

Q: How can I mitigate risks if my property’s construction is delayed?

A: Investors can take several precautions:

Check Developer Track Record: Opt for builders with a strong history of on-time project delivery.

Review Loan Terms: Clarify Pre-EMI and full EMI commencement rules with the bank before signing the agreement.

Plan Finances: Maintain a buffer for extended Pre-EMI payments or delayed tax benefits.

Ensure Legal Safeguards: Make sure the sale agreement includes clauses protecting you against excessive delays, penalties, or project abandonment.

Bottom Line:
While investing in under-construction properties can be financially rewarding, delays are a common risk. They can affect loan disbursal schedules, extend Pre-EMI obligations, increase interest costs, and postpone tax benefits. Careful planning, due diligence on the developer, and a clear understanding of loan terms can help minimize financial strain and safeguard your investment.