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IREF® - Indian Real Estate Forum > Real Estate in India > Real Estate Noida > Loan comparison: CLP on Tranche EMI vs. Downpayment with discount
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Old July 28 2010, 09:43 PM   #1
 
 
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Default Loan comparison: CLP on Tranche EMI vs. Downpayment with discount

I want some accurate information from people who have good experience of this.

My understanding is that Tranche EMI is meant for Construction Linked
Plan (CLP) - when for some reason (i.e. dont trust builder) you are
wanting to go only for CLP.But on the basis of your salary, you can
afford the full EMI calculated for your entire loan. So your loan is
released as per CLP demand letters only, but you start your full EMI
from day 1. In the beginning, you pay back a big chunk of principal
disbursed and of course the full interest of the disbursed amount.

When your full amount is disbursed in 3 years time, you have already
paid back some of the principal. So your EMI is based on a total
principal sum which is less than full sum of CLP. For example, suppose
full CLP price is 30L. You go for tranche EMI, they release 3L every
2-4 months. You pay back EMI of -say- 30,000 PM (for ease of discussion) which includes the interest and part of principal. After 3 years, your outstanding amount will be only 21L principal - because you paid back30,000 x 36 = 10,80,000 including - say- 9L of principal and rest interest. So now your remaining 12 years (for 15 year loan) you pay 21000 per month.

Of course, bank makes the EMI amount same for before and after the
full disbursal by doing an accurate calculation, this was just for
illustration, but the idea is same - you balloon your principal repayment in the first 3 years. So if for a 30L loan the regular EMI is say 1000 per
Lakh per month, then with tranche EMI, it will become less, say 900
per lakh per month.

This is my current understanding, subject to correction by those who
have actually taken the loan.

Has anyone taken Tranche EMI? What is the actual EMI per Lakh?

My query was to compare tranche EMI with Downpayment (DP). Since builder will give discount for DP, amount of loan will become less - which
will also make the EMI less. Suppose there is 10% DP discount, 30L
flat is now for 27L. So obviously EMI will be less.

I was wondering about the difference in EMI between tranche EMI - which is on CLP which is safer in case of delays - and availing DP discount and
thereby reducing EMI.

Since both methods reduce the loan size, in which method will we pay more to the bank?

Just an academic question to understand the financial implications - also, if Tranche EMI on CLP works out same or better than DP, then why should we pay the full amount to the builder and reduce his incentive to complete the work on time?

Would appreciate input from those who have analysed these situations.




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Old July 28 2010, 10:39 PM   #2
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Venky,

i havnt utilised it but have heard from a friend who has mentioned about it.
You have highlighted an important point which can be exercised by people as they can save pre-EMI interest and can chose the amount to be paid, till the time the property is ready for possession. Anything paid over and above the interest by the customer goes towards Principal repayment.

The customer benefits by starting EMI and hence repays the loan faster

There is another way of payment plan under CLP called Step Up Repayment Facility(SURF)which is in line with the growth ie initial EMI is less and grows in line with salary or income level of an individual.
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Old July 29 2010, 10:23 AM   #3
 
 
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SURF is totally different - it is an example of banks giving more loan than the salary is qualifying for - resulting in over-leveraging.

I am interested in knowing details of tranche EMI - how much principal can one pay back in the initial period?
 
Old July 29 2010, 04:56 PM   #4
 
 
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I am not sure if calculations are right, but apparently, based on 2 loan EMI calculators uploaded on Pune forum, with tranche EMI, total cost of 23 L loan for 15 years is 36.5L on CLP while with downpayment of 23 L it comes to 40L total. i.e. there is a 3.5L difference between tranche EMI and full EMI. Hence if there is approx 10% discount (36.5/40*23=20.7=10% of 23) for downpayment, then total cost on CLP and on DP will come to the same final amount paid to bank.

If that is the case, there is absolutely no discount for downpayment at all, even if they say there is 10% discount - so why make downpayment to builder at all?

Much better to stay with CLP and let the builder earn his disbursement by actually constructing fast.

Tranche EMI with big principal reduction in early 3 years negates the so called downpayment discount (upto 10%) completely and is much better way to take a bank loan in my (current) opinion.
 
Old July 29 2010, 05:36 PM   #5
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Please let me if I go for Felxi paln then also I have an option for going tranche emi?? Aslo send some usefull links about the tranche emi.

Thanks,
Chandan
 
Old July 29 2010, 11:20 PM   #6
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Quote:
Originally Posted by Venkytalks View Post
I am not sure if calculations are right, but apparently, based on 2 loan EMI calculators uploaded on Pune forum, with tranche EMI, total cost of 23 L loan for 15 years is 36.5L on CLP while with downpayment of 23 L it comes to 40L total. i.e. there is a 3.5L difference between tranche EMI and full EMI. Hence if there is approx 10% discount (36.5/40*23=20.7=10% of 23) for downpayment, then total cost on CLP and on DP will come to the same final amount paid to bank.

If that is the case, there is absolutely no discount for downpayment at all, even if they say there is 10% discount - so why make downpayment to builder at all?

Much better to stay with CLP and let the builder earn his disbursement by actually constructing fast.

Tranche EMI with big principal reduction in early 3 years negates the so called downpayment discount (upto 10%) completely and is much better way to take a bank loan in my (current) opinion.
Thanx for this enlightenment it is useful
 
Old July 30 2010, 11:22 PM   #7
 
 
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Tranche EMI is for CLP where person can afford EMI and current rent - or is buying a second house.

This utility someone posted on Pune using Excel calculator is really good. I was able to see what would happen if the project gets delayed after 2-3 disbursals. On a 25 L amount, cost is 39L with scheduled payments, only 36 L with some delayed payment scenario.

The benefit of CLP is truely realised with Tranche EMI

More infor here

http://www.indianrealestateforum.com...der-12648.html
 
Old August 2 2010, 10:27 AM   #8
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Quote:
Originally Posted by Venkytalks View Post
Tranche EMI is for CLP where person can afford EMI and current rent - or is buying a second house.

This utility someone posted on Pune using Excel calculator is really good. I was able to see what would happen if the project gets delayed after 2-3 disbursals. On a 25 L amount, cost is 39L with scheduled payments, only 36 L with some delayed payment scenario.

The benefit of CLP is truely realised with Tranche EMI

More infor here

http://www.indianrealestateforum.com...der-12648.html
Venky - any idea which banks offer this facility? Are you trying to negotiate one with your lender?
 
Old August 2 2010, 02:12 PM   #9
 
 
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Quote:
Originally Posted by capreal26 View Post
Venky - any idea which banks offer this facility? Are you trying to negotiate one with your lender?
SBI and HDFC. HDFC is probably best - you can chose the EMI in the beginning.

Check Pune thread link posted above for calculator and how to use any bank's CLP linked loan and structure your own tranche EMI - basically you can chose how much principal you pay back in first 2-3 years. Best is full EMI from start and reduce principal as much as possible. Possible for every bank.

Its a brilliant way to avoid downpayment and nullify so called 10% discount for downpayment. Pity that more people are not aware of this structured product - and builders are taking full advantage
 
Old August 2 2010, 03:36 PM   #10
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Quote:
Originally Posted by Venkytalks View Post
I want some accurate information from people who have good experience of this.

My understanding is that Tranche EMI is meant for Construction Linked
Plan (CLP) - when for some reason (i.e. dont trust builder) you are
wanting to go only for CLP.But on the basis of your salary, you can
afford the full EMI calculated for your entire loan. So your loan is
released as per CLP demand letters only, but you start your full EMI
from day 1. In the beginning, you pay back a big chunk of principal
disbursed and of course the full interest of the disbursed amount.

When your full amount is disbursed in 3 years time, you have already
paid back some of the principal. So your EMI is based on a total
principal sum which is less than full sum of CLP. For example, suppose
full CLP price is 30L. You go for tranche EMI, they release 3L every
2-4 months. You pay back EMI of -say- 30,000 PM (for ease of discussion) which includes the interest and part of principal. After 3 years, your outstanding amount will be only 21L principal - because you paid back30,000 x 36 = 10,80,000 including - say- 9L of principal and rest interest. So now your remaining 12 years (for 15 year loan) you pay 21000 per month.

Of course, bank makes the EMI amount same for before and after the
full disbursal by doing an accurate calculation, this was just for
illustration, but the idea is same - you balloon your principal repayment in the first 3 years. So if for a 30L loan the regular EMI is say 1000 per
Lakh per month, then with tranche EMI, it will become less, say 900
per lakh per month.

This is my current understanding, subject to correction by those who
have actually taken the loan.

Has anyone taken Tranche EMI? What is the actual EMI per Lakh?

My query was to compare tranche EMI with Downpayment (DP). Since builder will give discount for DP, amount of loan will become less - which
will also make the EMI less. Suppose there is 10% DP discount, 30L
flat is now for 27L. So obviously EMI will be less.

I was wondering about the difference in EMI between tranche EMI - which is on CLP which is safer in case of delays - and availing DP discount and
thereby reducing EMI.

Since both methods reduce the loan size, in which method will we pay more to the bank?

Just an academic question to understand the financial implications - also, if Tranche EMI on CLP works out same or better than DP, then why should we pay the full amount to the builder and reduce his incentive to complete the work on time?

Would appreciate input from those who have analysed these situations.



My belief is that for a person who can afford to pay full EMI both methods are flawed from the point of view of saving accruing to him. It would be better to go for CLP but pay only pre EMI interest and invest balance money in number of instruments available giving at least 8% return.

Why pay the principal amount in initial years and not invest it. What we pay to the bank appears too much but its value is reduced to the extent of inflation.

Just a different thought for all to ponder.

Regards,

Ram Pandey
 
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