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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  • Thnaks Venky for sharing your experience.
    I have one query "can we take Tranche EMI on partial down payment plan also"?

    If yes then which is more cost effective Tranch EMI on PDP or Tranch EMI on CLP. (as PDP will give me 11% more discount by builder, booked in Jaypee Kasa)
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  • "Thanks Venky for sharing your experience."

    thanks Amit for sharing your experience with HDFC and thanks Venky for educating me about this scheme.
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  • Need suggestion

    I have recently (around 1.6 yrs back) taken a loan of approx 28 Lacs for a period of 15 years towards a flat I purchased on CLP. I have also recently gotten married and wanted to avoid paying full EMI to the bank (although I could based on my salary) and therefore I am only paying the interest amount which is increasing as the disbursements are made by the bank. As of now, the bank has paid around 21 Lacs and my monthly EMI, which is just the interest component, is close to 14600/=. This is less than what my actual EMI would have been i.e. around 26000/= per month.

    Do you think this is wise? My idealogy was to pay full EMI once the entire dusbursement is done, which was a good 2 years around from when I took the loan and I expected a higher salary in future as well, and until then pay just the interest amount. By doing this, I've been able to avoid being hand to mouth after my marriage and now than its been almost 2 years, my salary is also increased about 20 % and I can manage paying full EMI. In the meantime, the flat I bought has appreciated 80% in the last 1.6 years.

    Please suggest if this was a wise decision or have I done a mistake because if I sell my property , I'll have to pay almost entire principal and the also the pre payment charges on full principal.
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  • I think people are over complicating things. interest on home loan is around 9%. so if you have money lying around, pay off your loan with that extra money , there is not point of investing that money in fd (most fd will earn you around 8% and rate of inflation is 14 %, so if you are keeping your money in fd its value is decreasing at rate of 6%.).

    and if you don't have money lying around, then you do not have any choice. just pay the emi or interest that you can easily afford.
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  • Hi Alok.

    As I said earlier, difference between loan and own money is just 1.5% plus some hassles of running around.

    Lot of business people would probably like the flexibility of having 30L in FD and paying off a loan that costs just 1.5% = getting FD return of 6% rather than 7.5%.

    Nparikh, the calculation included the tax implications - which is tax neutral because you have to pay tax on your FD interest also. So when you minus 9-7.5, actually you actually need to minus 7.5-2.5 (for 30% tax) and so 9-5 = 4% but because of tax breaks on loan (for 30L loan) this is made up by the tax break on the loan component to get 1.5%. Unless you cheat on your taxes - in which case you actually gain on your loan over "own money". Otherwise, difference is just 1.5%.

    For a service class person not wanting to cheat, probably easier to just pay from the bank.

    FYI, I havent taken this tranche EMI loan yet, was only investigating its financial implications.

    Varun, just when you get married is when you need a lot of money - so your decision is probably wise overall (there is wisdom beyond financial wisdom!). Home loans are cheaper than any other loan, so have a great time for 1 or 2 years, then you have your whole life to pay back the loan.

    Alienfrenzy, hope you get this link
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  • excellent thread - answered many of my questions perfectly..

    thanks IREF
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  • Tranche EMI

    I was searching on Tranche EMI's benefits and ended up here. Very valuable information here.
    One question about the EMI calculator uploaded here. When disbursment is on CLP, why EMI is calculated for total loan amount?
    I mean, when disbursment is done partially and not full loan amount, then EMI should be calculated based on the amount disbursed and not on full loan amount, right?
    Calculator shows me EMI paid from first month till last month same. This factor will also change the calculation a lot.
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  • I am confuse over one thing , suppose I paid 50 % principal with this Tranche EMI's option and somehow the project got discarded then what is the process and obligation to receive this amount back from the bank and any interest part (both ways). I am sure there must have been a clause ?
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  • Originally Posted by kasavgp
    I was searching on Tranche EMI's benefits and ended up here. Very valuable information here.
    One question about the EMI calculator uploaded here. When disbursment is on CLP, why EMI is calculated for total loan amount?
    I mean, when disbursment is done partially and not full loan amount, then EMI should be calculated based on the amount disbursed and not on full loan amount, right?
    Calculator shows me EMI paid from first month till last month same. This factor will also change the calculation a lot.


    My friend, the whole point is that you start full EMI despite drawing just first instalment of the CLP. So you pay back and reduce your principal outstanding since in early stage you are paying small interest component and large princal component.

    Most banks won't even tell you about this or won't have the option at all Only SBI gives this as an upfront option.

    Originally Posted by dpkmjn2012
    I am confuse over one thing , suppose I paid 50 % principal with this Tranche EMI's option and somehow the project got discarded then what is the process and obligation to receive this amount back from the bank and any interest part (both ways). I am sure there must have been a clause ?


    You won't get back any EMI from bank. you have to recover money from builder and pay back to the bank.

    If project gets screwed, whatever money you have paid to builder under CLP is anyway gone and bank will recover it from you and not from builder. The money you lose depends what you have paid on the CLP and has no connection with type of bank loan taken. Regardless of type of loan, you have to repay the amount.

    If you take under CLP and pre EMI loan and default because builder defaulted, you still will lose the pre EMI paid and your booking amount. You will never get another bank loan for a home until you repay the money paid by the bank to the builder under CLP whatever stage the builder stopped construction. Basically you are screwed if the builder screws you and defaulting on the EMI will only pile up more interests which bank will pile on your defaulted amounts and your loan keeps growing since the flat is not sellable for many years and take over of the mortgaged property takes a lot of time.

    Since under tranche scheme you have paid up more money to the bank than usual, if your idea is to default to the bank if the builder defaults, then you should not go for tranche EMI, which is only for those who don't plan to default on the bank even if the builder defaults on delivery.
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  • Bro , you have said my thoughts... yes I am kind of below thinking and hope many would share this . . thanks for the clarity but logically bank should at least returned the extra amount paid over CLP because bulilder haven't received that and that is like an advance storage to bank which bank hasn't paid to builder ? ? ? but as you clarified below , pity on we buyers :(((

    "Since under tranche scheme you have paid up more money to the bank than usual, if your idea is to default to the bank if the builder defaults, then you should not go for tranche EMI, which is only for those who don't plan to default on the bank even if the builder defaults on delivery"
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  • dpkmjn2012,

    If bank paid 5L to builder out of 50L loan. Fully EMI would be 50k. So in about 18 months, the whole loan (5L) would be paid off if bank doesn't give more money to builder. So at this point, I think bank will stop taking EMI from you. (please correct if this is not the case) So there would be no question of giving advance to the bank.
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  • Originally Posted by fatichar
    dpkmjn2012,

    If bank paid 5L to builder out of 50L loan. Fully EMI would be 50k. So in about 18 months, the whole loan (5L) would be paid off if bank doesn't give more money to builder. So at this point, I think bank will stop taking EMI from you. (please correct if this is not the case) So there would be no question of giving advance to the bank.



    hmmm , I am not sure , venky may throw some light as he had brought this part of info here :((
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  • Originally Posted by fatichar
    dpkmjn2012,

    If bank paid 5L to builder out of 50L loan. Fully EMI would be 50k. So in about 18 months, the whole loan (5L) would be paid off if bank doesn't give more money to builder. So at this point, I think bank will stop taking EMI from you. (please correct if this is not the case) So there would be no question of giving advance to the bank.


    Of course - they will recover whatever amount was disbursed PLUS interest calculated, then youe EMI will stop.

    Problem is, most builders have 3 time linked payments within 2 months which takes around 25-35% of the apartment cost right up front. After that they do a "digging" and take another instalment. So 30-40% goes for a hole in the ground.

    Which means, you have a 30-40 % loss plus interest on the amount which bank would have paid. So 20% loss from your pocket and then another 10-15% from banks disbursement.

    Originally Posted by dpkmjn2012
    hmmm , I am not sure , venky may throw some light as he had brought this part of info here :((


    As above.

    But suppose you take a no EMI loan - even then, you lose 20% and then you are liable for the remaining 10-15% which bank has paid to the builder which will be recovered from your salary.

    If you bounce a EMI check, they will come after you and prosecute for bounced check.

    If you default, they will get a court order and recover from your salary and impound your pledged documents and BBA.

    Only after you pay all outstandings will you get out of the tripartite agreement.

    In the meantime, if you have defaulted, you wont get another home loan until dues have been paid.

    This will prevent you from making another potentially more lucrative real estate deal.

    Since the ourstandings are more in subvention schemes, pre-EMI scheme, no EMI for two years scheme and partial downpayment schemes (and of course full downpayment scheme has maximum outstandings) - in all of these, your liability is in no way taken over by the bank - even if only 20% has gone out of your hand, the remaining amount is your liability and not banks liability.

    Many people think of making a good "no EMI for 2 years" scheme and think their own liability is limited. They are sadly mistaken - bank is taking on no liability and the more loan you take, the more money it makes.

    If it tries all methods and fails to collect from you (destroying your financial stability in the process) it will take over the booking and sell it at whatever stage and first give money to itself before you see a paisa. SOmetimes if the whole project fails, the big lenders take it over and these home loan lenders all sell your loan to one SPV which will sell and recover the money for themselves.

    You wont get anything unless you pay up the bank's dermands.

    Basically, if your builder runs away, you are finished and bank provides no cushion or safety net - it only adds mirchi to your jala hua skin.

    Situation with bank loan to builder is different. If bank gives loan to builder, they have various ways of syphoning the banks money out (for example buying land from aggregators which are front company of the promoter himself). They if builder runs away, then the loan becomes a problem for the bank. Builder will go to Switzerland and change identity.

    It is a very unfair thing but true.

    If individual defaults, it is individual's problem.

    If big company defaults, it is the banks problem (run with depositer's money).

    If entire country defaults to another country's bank (like Greece defaults on German bank's loan) - they it becomes the Greece and German taxpayer's mutual problem - Since the Greek company has spent/syphoned the money and the German banks cannot be allowed to fail on such large country size scale.

    Each time it is the small guy who has to take the hit
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  • very true venky . . . But I am little ecentric and might be able to suffer banks even little but I don't mind doing that . . . If whole system is corrupt , I make sure I am not the only one to take all suffering . . .

    Thats is why If one has cash , it is always advisible to take on CLP. CLP seems safer to me , though not 100%
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  • @Venky, first and farmost, kudos to you to bring this topic on IREF, you always been inspirational for most of us.

    Quick things, did you get the Tranche experience now, does things have been changed in 2013 i.e. what all banks have been started etc.?

    I am in process of starting the home loan and figuring out the best possible option and looking for 30L loan for 20 years as of now and may opt for more later.

    amjamirs2 - xls is password protected (the one shared in Pune's forum), can't change anything, do you know the one? :)
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