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Comparison of CLP on Tranche EMI vs. Downpayment with discount from builder

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Comparison of CLP on Tranche EMI vs. Downpayment with discount from builder

Last updated: August 24 2016
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  • Comparison of CLP on Tranche EMI vs. Downpayment with discount from builder

    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.



    Venky (Please read watch a or before posting)
  • #2

    #2

    Re : Comparison of CLP on Tranche EMI vs. Downpayment with discount from builder

    In case of possesion after 3 years people will prefer pre-EMI if they are staying on rent as it will reduce monthly burden.

    Specific to conditions you have mentioned fulll EMI and DP are different cases. One will go for full EMI if he has monthly income enough to pay full emi + rent. One will go for DP if he has lot of cash in hand.

    In DP option discount should be good enough to overcome risk factor(always unknown).

    I know i have not given answer to your specific question as O failed to judge them on common factors.

    Comment

    • #3

      #3

      Re : Comparison of CLP on Tranche EMI vs. Downpayment with discount from builder

      It is good to have a completion based payment to builder. However you should start full EMI from first month itself. This way you repay the loan much earlier than expected tenure.
      Please check the attached file explaining calculations. This is a rough caclulator I created in EXCEL. Good to understand your home loan.
      Attached Files

      Comment


      • anilku9584
        anilku9584 commented
        Editing a comment
        amjamirs2
        i am unable to download the file or view the file .. can you please share the file again.
    • #4

      #4

      Re : Comparison of CLP on Tranche EMI vs. Downpayment with discount from builder

      Hi Amjamirs2.

      Excellent tool you have created. Kudos. It is exactly the situation I was trying to calculate.

      Now, is it possible to get what you have made as an actual plan from a bank?

      Doesnt HDFC and SBI have tranche EMI plans - can we chose to repay using the plan you have created?

      Again, very impressive and educational for everyone.
      Venky (Please read watch a or before posting)

      Comment

      • #5

        #5

        Re : Comparison of CLP on Tranche EMI vs. Downpayment with discount from builder

        Originally posted by Venkytalks View Post
        Hi Amjamirs2.

        Excellent tool you have created. Kudos. It is exactly the situation I was trying to calculate.

        Now, is it possible to get what you have made as an actual plan from a bank?

        Doesnt HDFC and SBI have tranche EMI plans - can we chose to repay using the plan you have created?

        Again, very impressive and educational for everyone.
        HDFC has Tranche EMI plan. BOB do not have a Tranche EMI plan. However you can start full EMI with first disbursement or opt for EMI holiday and pay only the interest for 18 months. In between, it is also possible to repay some principle too. SO you can achieve the benefits of Tranche EMI by planning yourself. This should be possible with any banks' loan.

        Comment

        • #6

          #6

          Re : Comparison of CLP on Tranche EMI vs. Downpayment with discount from builder

          Thats great information, amjamirs2

          The whole reason I started this thread was because I wanted to see whether, when taking loan, CLP is better or DP is better.

          I had earlier felt that by taking 15% DP discount, one cuts the full price of flat paid to bank (repayment price) by around 20-25% (rough calculation). Hence for bank loan, if the builder was "good" (sic) it was better to avail DP discount.

          Now, with CLP also, using tranche EMI plan, how much would the total repayment reduce to bank?

          i.e. Suppose flat price is 30L

          If you take 100L loan, pay only interest for 3years or construction and then repay fullamount over next 15 years, suppose your total cost is 180 L after 15+3 years of repayment.

          If you avail 15% discount, suppose repayment is 150 L after 15 years itself.

          That is 30L less on the price of the flat by taking 15% discount.

          Now suppose you take CLP and opt for tranche EMI scheme for 15 years.

          Final price will be less with DP or with CLP with tranche EMI?
          Venky (Please read watch a or before posting)

          Comment

          • #7

            #7

            Re : Comparison of CLP on Tranche EMI vs. Downpayment with discount from builder

            I think you should also add factor of tax benefit on EMI, Like:
            • You can not claim any income tax benefit on this pre-EMI interest in the year you pay it to the bank. Pre-EMI interest can be claimed in 5 equal instalments after the construction of the house ends.
            • You do not get any income tax benefit on the principal amount for the EMIs that you paid before getting possession of your house (as principal component can be claimed only after you get possession of the house).

            Comment

            • #8

              #8

              Re : Comparison of CLP on Tranche EMI vs. Downpayment with discount from builder

              Originally posted by Venkytalks View Post
              Thats great information, amjamirs2

              The whole reason I started this thread was because I wanted to see whether, when taking loan, CLP is better or DP is better.

              I had earlier felt that by taking 15% DP discount, one cuts the full price of flat paid to bank (repayment price) by around 20-25% (rough calculation). Hence for bank loan, if the builder was "good" (sic) it was better to avail DP discount.

              Now, with CLP also, using tranche EMI plan, how much would the total repayment reduce to bank?

              i.e. Suppose flat price is 30L

              If you take 100L loan, pay only interest for 3years or construction and then repay fullamount over next 15 years, suppose your total cost is 180 L after 15+3 years of repayment.

              If you avail 15% discount, suppose repayment is 150 L after 15 years itself.

              That is 30L less on the price of the flat by taking 15% discount.

              Now suppose you take CLP and opt for tranche EMI scheme for 15 years.

              Final price will be less with DP or with CLP with tranche EMI?
              I did below calculations:

              Suppose Loan Amount is 100L
              For DP, builder is giving discount of 15L
              So loan amount is 85L. With DP, total interest payment in 15 yrs for 85 L is 66L.
              Now suppose instead of DP with 15L discount, you go by CLP.
              So loan amount is 100L but disbursement done in installments over next 2 years. With this, the interest payment in 15 yrs comes to below 60L.

              So CLP is better. You can do your own calculations in the excel sheet. I assumed interest rate at 8.5%

              Comment

              • #9

                #9

                Re : Comparison of CLP on Tranche EMI vs. Downpayment with discount from builder

                For me, economics is simple. The less I pay to the builder today, the more in profit I am - less interest paid over the years + amount saved = amount invested to get 20% return.

                Hence, if the builder (reputed builder) says, 2 years to possesion - I would do my maths on 4, and even then I would be in profit as extra EMIs over these 2-4 years, wouldnt even account for the saving that I am making.

                However, all this argument today is useless- since after booking a flat - you dont know whether you will get the possession at all, quality, FSI, etc and all this trouble with the builder/legal system is a very painful task today.

                Hence, I would only advise you to BUY whats on the ground
                (a 5 year kind of a resale)- and what is tangible - even if it means shelling out 2-5 lacs more than the market price.

                Personally, I wouldnt buy a new/under construction flat unless a regulator is in place, and even after its in place, I would wait for another 1-2 years to check how its functioning - or whether its just a mouthpiece of the builders.

                Also, I think the prices will remain stable for another 3-4 years and hence would only want to enter when everybody is trying to "SELL" than when everybody is trying to "BUY".

                Comment

                • #10

                  #10

                  Re : Comparison of CLP on Tranche EMI vs. Downpayment with discount from builder

                  There is a function in excel which will calculate EMI.. no need for long spread sheets .. m sure some of u already know this .. but just thought of sharing with all ..

                  Function is = PMT(rate per month in fraction,Total Number of Months, Loan Amount)

                  Jai Excel

                  Comment

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