Home Loan Tranche Disbursement Explained

Home Loan Tranche Disbursement – A Homebuyer’s Guide

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Home Loan Tranche Disbursement – A Homebuyer’s Guide

3 min 11 Jun 2025

Highlights:

How Does the Tranche Disbursement Process Work?
What Is a Tranche EMI?
Choosing between Tranche EMI and Full EMI – Which Option Suits You?
Things to Consider for Tranche-Based Disbursement

When purchasing a ready-to-move-in property, lenders typically disburse the Home Loan in one go or as per the agreed terms. But if your home is under construction, your lender may disburse it in tranches.

Think of it this way: instead of receiving the entire loan amount at once, your lender releases it in parts (or tranches) based on how much construction has progressed. This approach not only helps with financial discipline but also ensures you are paying interest only on the disbursed amount.

This guide covers how the Home Loan disbursement process works and what it means for your EMI and overall borrowing experience.

How Does the Tranche Disbursement Process Work?

Let us assume that your property will be constructed over two years. The builder might request payments at each phase, such as foundation laying, flooring, roofing, finishing, and so on.

If your sanctioned loan is Rs.50 Lakh and the builder’s first demand is for Rs.10 Lakh, only that amount will be disbursed initially. The remaining Rs. 40 Lakh will be disbursed in subsequent stages as construction progresses.

Here is how the process typically is:

Once the loan is sanctioned, the lender issues a sanction letter with terms. It includes the total approved amount and interest rate.
You will need to submit construction-linked demand letters given by the builder to your lender.
The lender may verify the construction progress.
Then, the funds are disbursed directly to the builder.

What Is a Tranche EMI?

A tranche EMI refers to the payment made by a borrower based solely on the portion of the Home Loan that has been disbursed. It differs from a regular EMI that is calculated on the total sanctioned amount from the outset.

While the property is still under construction, most borrowers pay what is called a pre-EMI. This amount covers only the interest on the released tranches. The complete EMI that includes both principal and interest starts only after the full loan amount has been released.

Choosing between Tranche EMI and Full EMI – Which Option Suits You?

Borrowers may wonder whether they should opt for tranche-based EMIs or start paying full EMIs from the beginning. The answer depends on your financial comfort and goals.

If you are managing rent and other financial obligations and want to minimise cash outflow, opting for pre-EMI (which covers only the interest on the disbursed amount) may help reduce monthly expenses during the construction period. However, it is important to note that this approach does not reduce the principal.

Alternatively, if you pay the full EMI (comprising both principal and interest) even before the entire loan amount is disbursed, you can gradually lower your overall interest obligation. This option may be more cost-effective over time, particularly if you can accommodate the higher instalment.

Things to Consider for Tranche-Based Disbursement

Here are a few important factors to consider:

Review your lender's terms for tranche disbursement.
Timely fund disbursal requires that the builder follow the construction timeline.
While pre-EMIs are lower initially, they do not reduce the principal. Consider switching to full EMI sooner if possible to reduce total interest payments.

The Home Loan tranche disbursement process is a flexible option if you are planning to purchase an under-construction property.

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