Buying a flat? Here’s what ‘no EMI till possession’ actually means

Some real estate developers market housing projects with offers such as “no EMI till possession” to attract homebuyers, particularly in under-construction properties. Though such schemes are less common now, these arrangements typically work in a way where buyers are not required to pay regular home loan EMIs until the property is ready for possession, even if the loan has already been been sanctioned and partially disbursed by the lender.

This provision is structured through an agreement between the developer, the buyer and the lender, where the developer pays the interest on the home loan taken by the customer until possession. The exact terms, duration and financial implications can vary across projects and lenders, making it crucial for buyers to understand how it works before signing the agreement.

How does this arrangement work?

In this arrangement, since the builder agrees to bear the interest cost on home loan for a specified period, the buyer is not required to pay regular EMIs while the property remains under construction, which gives temporary relief from servicing the loan during that phase.

‘No EMI till possession’ benefit can also create and incentive for developers to complete the property’s construction in a scheduled manner, as delays may increase the interest burden borne by the builder, according to information available on Kotak Mahindra Bank's website. This means the longer the possession is delayed, the longer the developer may have to continue servicing the pre-EMI interest on the customer's loan.

For lenders, such schemes may be beneficial as customers are often willing to bear higher processing fees and interest rates as they won’t have to pay EMIs till the possession of the property, the bank noted on its website.

Homebuyers considering a loan for an under-construction property may come across the ‘No EMI till Possession’ scheme. However, before opting for it, one should carefully examine the terms and conditions, including the duration of the scheme, interest liability, construction timelines, and any additional charges associated with the offer.

Things to Consider Before Opting for ‘No EMI till possession’

Before goin ahead with a ‘No EMI till possession’ scheme, homebuyers should evaluate certain aspects of the arrangement carefully. These include:

• Carefully read the terms and conditions of the agreement that you sign with the developer of the housing project and ensure that everything is on paper.
• Some builders may propose a fixed lock-in period in case of such properties, during which the buyer is not allowed to sell the property. You will have to pay a heavy penalty if you still sell it, according to Kotak Mahindra Bank.
• In most cases, this scheme is only valid for a fixed period of 2 to 3 years, and the property developer is expected to give possession during this period. If the possession of the property is delayed, the responsibility to pay the bank falls on the buyer, meaning you will have to make EMI payments without receiving your house and paying rent on your existing residential property (if applicable).
• A homebuyer must make a note of the period for which the builder agrees to pay the loan interest and the consequences if the builder defaults on payments.
• Before purchasing an under-construction property, buyers should assess factors such as location, connectivity, amenities, and project suitability to avoid potential inconveniences later.

Another option that a customer can consider is a construction-linked payment plan (CLP), in which you pay a small booking amount and the remaining payments are triggered only when specific physical milestones are reached. You can also choose ready-to-move homes to protect yourself from project abandonment.