### Loan comparison CLP on Tranche EMI vs Downpayment with discount

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Venkytalks

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Started 7 years ago

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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.CommentQuote0Flag - 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?CommentQuote0Flag - 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.CommentQuote0Flag - 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,

ChandanCommentQuote0Flag - Originally Posted by VenkytalksI 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 :)CommentQuote0Flag - 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

https://www.indianrealestateforum.com/forum/city-forums/pune-real-estate/10286-comparison-of-clp-on-tranche-emi-vs-downpayment-with-discount-from-builder?t=12648CommentQuote0Flag - Originally Posted by VenkytalksTranche 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

https://www.indianrealestateforum.com/forum/city-forums/pune-real-estate/10286-comparison-of-clp-on-tranche-emi-vs-downpayment-with-discount-from-builder?t=12648

Venky - any idea which banks offer this facility? Are you trying to negotiate one with your lender?CommentQuote0Flag - Originally Posted by capreal26Venky - 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 advantageCommentQuote0Flag - Originally Posted by VenkytalksI 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 PandeyCommentQuote0Flag - Originally Posted by rampandeMy 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

Hi Ram Pandey,

This issue of whether to take a loan even if you have the money yourself has been discussed elsewhere.

We found that there is approx 1.5% cost for bank loan over own money.

Its worth it only if you have a good use for own money - cheap at 1.5%. So for businessmen, stock traders and others with anticipated big expense (marriage, child's education etc) it makes better sense to take the loan and keep the cash - since housing loan is the cheapest loan vis-a-vis other types of loan.CommentQuote0Flag - Another thing..one can reduce income by deducting interest on home loan in India I guess..In this case it'll be advatageous to go for DP plan as one will pay more interest from the beginning compare to CLP plan...I don't know how exactly it works but it depends on tax slab you fall under...that could be big advantage for someof us....

Cheers,

Originally Posted by VenkytalksHi Ram Pandey,

This issue of whether to take a loan even if you have the money yourself has been discussed elsewhere.

We found that there is approx 1.5% cost for bank loan over own money.

Its worth it only if you have a good use for own money - cheap at 1.5%. So for businessmen, stock traders and others with anticipated big expense (marriage, child's education etc) it makes better sense to take the loan and keep the cash - since housing loan is the cheapest loan vis-a-vis other types of loan.CommentQuote0Flag - Speaking with LICHFL for a tranche EMI type of loan (they dont call it "Tranche EMI" but flexibility to pay more than Pre EMI during the construction period is available). Hopefully, I should be able to utilize this to reduce the overall interest cost. Havent worked out all the calc, will post once I do that.

Venky - big thanks to you for bringing this up. Maybe able to save some costs actually because of these forums.:oCommentQuote0Flag - Venky, Thankyou so much for educating us about this.

Has anyone in this forum taken loan on Tranche EMI from DFC?If yes, how was the experience?CommentQuote0Flag - Originally Posted by nparikhAnother thing..one can reduce income by deducting interest on home loan in India I guess..In this case it'll be advatageous to go for DP plan as one will pay more interest from the beginning compare to CLP plan...I don't know how exactly it works but it depends on tax slab you fall under...that could be big advantage for someof us....

Cheers,

Considering you are at 30% slab. Interest paid of 2 lkh in an year will get you 30% tax rebate = 60 thousand. You paid 1.40 lkh extra. There is other option to save tax, charity, it will do good to need than bank.

tax rebate will not com into effect until possesion. Try simple loan calculator from web. 30 lkh loan will take reduce principal by principal by 1 lakh in first 2 years. you pay approx 3lkh as inerest in first year and same in 2nd.

DP is senseless in all ways if you gng for self finance or funded by bank. CLP or Partial DP looks good options again depending on situationCommentQuote0Flag - Originally Posted by priyanka_20Venky, Thankyou so much for educating us about this.

Has anyone in this forum taken loan on Tranche EMI from DFC?If yes, how was the experience?

I have just started with my Tranche EMI with HDFC. It appears to be amazing to reduce principal.

Bottom line is if you can afford big EMI, start from begining paying that EMI, you ll save big on interest this way than if you chose to pay only interest part.

20 yrs loan, if strated with Tranche may become 15 yrs or less in 3 yrs till you get possesion. You save good number of years.CommentQuote0Flag