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

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Venkytalks

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- same problem I am also facing - the sheet isn't downloading. Would be very beneficial indeed - I am in the process of taking a loan and is facing the same conundrum (CLP with tranche EMI or non-moratorium vs DP). I also have PLC complications so would need to play around with the sheet a bit - kindly make it available :)CommentQuote0Flag
- @admin that file was uploaded six years ago please check and if possible reupload itCommentQuote0Flag
- folks - i have taken a humble attempt at trying to build this out but not entirely sure I am doing this correctly. Can you guys please review once and let me know if I am missing something.

Let me know if you face any issues in playing around with this - need your valuable inputs soon as I need to decide quickly for my home loan.CommentQuote1Flag - 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.

Venky - i have uploaded my version of this. Since you have had a view of the original sheet, could you please take a quick look and comment if I am missing something.

The broad conclusion seems to be the same - in the example I have taken, DP discount needs to be 19% or so to compare with the CLP tranche EMI option.

Thanks a lot !CommentQuote0Flag - legolas09 ;

In at least one or two schemes I have noticed that the subvention rates are higher than the normal rates since the builder has built in the cost..

While CLP protects you (you would have paid a lower amount to the builder, in case the builder goes bankrupt).

Depending on the terms of the subvention scheme (actual on delivery and you get the final delivery but very very late) the subvention may work out to be cheaper. Check the exact terms.

In terms of taxation..the higher rate under subvention is "Cost of the House" and tax benefits are availed when it is sold (@20% with indexation). Good if you are a enduser since you are likely to exhaust the 2.5 lakh limit. For a person with this as a second house/planning to rent it out, it is preferable to use CLP and pay interest since the tax deduction starts on Possession * 30% without limits.CommentQuote0Flag - Originally Posted by Que Sera*legolas09 ;

In at least one or two schemes I have noticed that the subvention rates are higher than the normal rates since the builder has built in the cost..

While CLP protects you (you would have paid a lower amount to the builder, in case the builder goes bankrupt).

Depending on the terms of the subvention scheme (actual on delivery and you get the final delivery but very very late) the subvention may work out to be cheaper. Check the exact terms.

In terms of taxation..the higher rate under subvention is "Cost of the House" and tax benefits are availed when it is sold (@20% with indexation). Good if you are a enduser since you are likely to exhaust the 2.5 lakh limit. For a person with this as a second house/planning to rent it out, it is preferable to use CLP and pay interest since the tax deduction starts on Possession * 30% without limits.

thanks for your response - you are correct, subvention BSP is higher than CLP / DP BSP. However, I am not looking at subvention plan.

I wanted to compare the following 2 scenarios:

i) DP with bank loan (less principal due to builder discount upfront)

ii) CLP with bank loan but with tranche EMI option (higher principal on the loan but I start paying full EMI from day 1 even though I ask bank to disburse in tranches thus my interest payouts are lesser and EMI goes towards paying principal earlier)

If you look at my sheet as per my nos, DP discount from builder needs to be 19% or so to break-even with the tranche CLP scenario I have (10 equal disbursements of the loan amount, once every 3 months)

I just wanted veterans here to look at the sheet and guide me if I am missing something or the nos. make sense as they are

Thanks ! :)CommentQuote0Flag - Originally Posted by legolas09

If you look at my sheet as per my nos, DP discount from builder needs to be 19% or so to break-even with the tranche CLP scenario I have (10 equal disbursements of the loan amount, once every 3 months)

Thanks ! :)

The hitch again is the dates. We assume the CLP or delivery will be delayed. In case of DP, the delay benefit does not accrue to us.

How did you work out the CLP dates since these are the key? Do you have any info from the builder ? Current MIVAN tech allows one floor per fortnight and there are builders doing it..even today.

We have some cases on the forum wherein 19% odd amount has been advanced to the bulider and CC not obtained for a long time..reputed builders. This obviously delays the CLP and makes it more favourable over the DP..

In case of CLP the benefit accrues to us in terms of delayed construction.

You can even pay one or two instalments out of your own funds which you would have accumulated rather than asking the bank to pay in case of such delays.CommentQuote0Flag - Originally Posted by Que SeraThe hitch again is the dates. We assume the CLP or delivery will be delayed. In case of DP, the delay benefit does not accrue to us.

How did you work out the CLP dates since these are the key? Do you have any info from the builder ? Current MIVAN tech allows one floor per fortnight and there are builders doing it..even today.

We have some cases on the forum wherein 19% odd amount has been advanced to the bulider and CC not obtained for a long time..reputed builders. This obviously delays the CLP and makes it more favourable over the DP..

In case of CLP the benefit accrues to us in terms of delayed construction.

You can even pay one or two instalments out of your own funds which you would have accumulated rather than asking the bank to pay in case of such delays.

1. totally agree on what you are saying...the later you ask the bank to disburse and lower the disbursement more beneficial is CLP over DP

2. yes I have the payment schedule from the builder. I will work out the exact nos but what I have attached is just a working taking a hypothetical case - people can play around with the nos. / interval of disbursement etc.

Intention was to check if the model is correct - will then plug in actual details and compare. In my case builder is offering a 12% DP rebate which I think I will forego and opt for CLP with a tranche as that looks to be more beneficial - again, will try and get as less disbursed from the bank during the initial few demands so that CLP is more beneficial.

Thanks !CommentQuote0Flag - The 10% discount is highway robbery. Rough logical call out.

Assume house costing 300 payable evenly over 3 years and loan rate of 10%. First year instalment of 100 ,interest cost will be say 5 if payments are spread out over the year, second year 10 and third 10.. Total cost 25.

For the second and third years instalments will be 5+10 and 5.., total interest 45. Even if i increase the first year cost to 7.5, interest will be 53.

If you dp 290 .. interest is 29 * 3 =87. Total cost is 377 vs 345/353 in the above example. A 30% discount gives you a cost of 351 assuming 100% dp is made upfront.

You can of course fine tune this to include x % initial downpayment under clp, which will increase the clp cost, lower stamp duty, service tax for the non clp etc

You will have your funds to pay the loan.. Regardless of whichever option you choose so you not mix it up with this decision. The positive impact of your emi payment will be the same in both cases.

Many banks give a emi holiday.. the time period varies for which you can choose to pay only the interest on the disbursed loan. You can use this period to cobble up some money and actually pay a few clp demands yourself reducing the disbursed loan amount. Or start emi from day 1 on CLP.CommentQuote0Flag - Never give full amount to builder no matter what discount you are getting. You will save far more by going in for CLP and will have peace of mind should the project get delayed. You also have a handle on the builder as payments are pending. These days at least major banks will not give you the entire loan amount upfront, they will prefer CLP only. Go for CLP and if you have excess money anytime, keep doing pre-payments, so that your loan liability reduces fasterCommentQuote1Flag