I am paying EMI on my under construction flat. The pre-EMIs are creating confusion on how much I have to pay in total 

I have a home loan with HDFC for a period of 360 months that began in February 2024. I make monthly payments covering both principal and interest. The property is still under construction, and the final disbursement is pending.

I made two prepayments totalling 4 lakh each in order to reduce the total number of months left on the loan, which was initially around 198 months as of September 2024. However, I noticed in January that the number of months had reverted back to 358. Upon inquiry, I learned that with each disbursement, the loan term resets to 360 months.

A new disbursement was made in October 2024, and HDFC has confirmed that I now have to pay for 348 months, minus only 12 months since February 2024.

I am confused about what happened to the 8 lakh I paid as part of the prepayment. I had intended to reduce the number of months, not the EMI amount. Should I have waited until complete disbursement before making the prepayment? I am seeking clarification on how this process works.

Advice by Animesh Hardia, Senior Vice President, Quantitative Research at 1 Finance

Let's analyse your situation and clarify what seems to be a rather confusing loan scenario.

From your query, it is unclear how your pending tenure changed from 358 months in January 2025 to 348 months on February 25. If a new disbursement was made in October 2024, then the pending tenure should reflect as 357 in Feb-25 (360 minus 3 months since Oct-24).

In any case, ideally, the tenure reset should not have happened because your full EMI (with principal amortisation) has started. What you described is usually the case with borrowers opting for pre-EMIs, where only interest payment is made until the full disbursement.

Pre-EMI entails making monthly payments that cover solely the interest portion of your mortgage. During this period, no portion of the payment goes towards reducing the principal amount. If your home or apartment is being constructed, you will have the option to opt for pre-EMI payments. A tax benefit can be claimed on the interest component of Pre-EMI payments under Section 24(b) of the Income Tax Act.

Whenever a prepayment is made on home loans, lenders are required to check with the borrower whether they would like to:

1. Keep the EMI unchanged and shorten the tenure; or

2. Keep the tenure unchanged and reduce the EMI amount; or

3. Adjust both EMI and tenure.

It seems the bank representatives may not have clearly explained how prepayments work during the construction phase. It's possible they didn't fully understand the specifics either. But the Rs 8 lakh you prepaid must have reduced the principal amount on which interest was calculated. So you DID benefit because you paid less interest each month.

Here's what I recommend doing now:

1. Review Your Loan Agreement

Scrutinise the fine print regarding prepayment terms for under-construction properties. This is the most important thing to do.

2. Request a Detailed Statement

Ask HDFC for a detailed statement showing how each disbursement and prepayment affected your principal outstanding, EMI, and loan tenure.

3. Talk to a Senior Official

Escalate the matter if the customer service representatives can’t provide satisfactory explanations. Request a meeting with a senior loan officer who can clarify the bank's policies.

4. Send Email in Future

Submit a written request in the future to HDFC to apply all prepayments done before full disbursal toward tenure reduction (not EMI reduction) by using this email template: "All prepayments shall only reduce loan tenure while keeping EMI constant until full disbursement. No EMI reduction permitted without explicit consent."

In summary, review your loan agreement and talk to a senior bank representative to understand how prepayments work during the construction phase. That is the most important thing to do right now.