Home Loan for an Under-Construction Flat in NCR: Tranches, Pre-EMI and the Tripartite Agreement

Most under-construction flats in Noida, Greater Noida West, Gurugram and Ghaziabad are bought with a home loan, but a loan on a building that does not yet exist works very differently from a loan on a ready flat. The bank sanctions the full amount but releases it in stages, you pay interest only on what has been released, and the builder, the bank and you are bound together by a tripartite agreement. When the project runs late, those mechanics decide how much extra you pay. This guide explains how stage-linked disbursement works, pre-EMI versus full EMI with worked numbers, the tripartite agreement, what happens if the project stalls, and the checks to make before you sign.

Sanction is not disbursement

A sanction letter tells you the maximum the bank will lend, the rate and tenure. Disbursement is the actual release of money. For a ready flat, the bank releases almost everything at registration. For an under-construction flat, disbursements are linked to construction progress and released against the builder’s demand letters. This is an RBI rule, not just bank practice. The RBI’s Master Circular on Housing Finance (April 2022 version), which carries forward a September 2013 circular on 80:20 and 75:25 style schemes, tells banks that disbursal of housing loans to individuals should be closely linked to the stages of construction, and that upfront disbursal should not be made for incomplete, under-construction or green-field projects. The only exception is for projects sponsored by government or statutory authorities with no history of non-completion, where banks may follow the authority’s payment stages.

The Supreme Court’s October 2026 decision in Madhu Kudapa v. Lodha Healthy Constructions shows why this matters. The bank had released Rs 1.69 crore to the builder in thirteen tranches over seventeen months, so that the builder held about 95 percent of the price, while the building was later reported to be only 90 percent ready. The court found the bank deficient in service because the buyer had asked it to verify construction and the bank produced no inspection reports. The court’s message to lenders was to verify progress before each release and keep records.

How stage-linked disbursement works

• Own contribution first. Banks usually want your margin money (often 10 to 25 percent, depending on loan size and lender policy) paid to the builder before they release their share.
• Demand letter. When a construction stage is reached, the builder issues a demand. You forward it to the bank, often with an architect’s certificate or site photographs.
• Verification. The bank checks the stage, sometimes through a technical inspection, and releases its share directly to the builder’s project account.
• Repeat until possession. The last tranche is usually released at the offer of possession.

Make sure every release goes to the project’s designated collection account shown on the RERA portal. RERA requires 70 percent of buyer collections to be held in a separate account and withdrawn only in proportion to completion, certified by an engineer, an architect and a chartered accountant. In October 2026 UP RERA advised buyers to pay only into designated project accounts and to report requests to pay elsewhere.

Pre-EMI or full EMI: the maths

During construction, most lenders let you choose between:

• Pre-EMI: pay only interest on the amount disbursed so far. Full EMIs start after the final disbursement.
• Full EMI from the first tranche: pay an EMI calculated on the disbursed amount, so principal starts reducing at once.

Illustration

For illustration only, assume a loan of Rs 60 lakh at 8.5 percent, 20-year tenure, disbursed in four equal tranches of Rs 15 lakh at months 0, 12, 24 and 36, with possession at month 42.

Over three years, pre-EMI totals roughly Rs 7.7 lakh and reduces no principal. If the project runs a year late and the last tranche is delayed, you pay another year of interest-only instalments. Choosing full EMI from the start costs more each month but ends the loan sooner. Floating rates add another variable: the RBI raised the repo rate to 5.50 percent on 7 October 2026, and SBI revised its MCLR from 15 October 2026, so pre-EMIs on existing tranches can rise mid-construction.

Tax treatment of pre-EMI interest

Interest paid before construction is complete is not deducted year by year. It is accumulated and claimed in five equal instalments starting in the year the property is completed, within the overall annual limit for a self-occupied home, as our home-loan tax guide explains. A long delay therefore postpones tax relief as well.

The tripartite agreement

For under-construction flats, the lender, the builder and you usually sign a tripartite agreement. Typically it records that the builder will route the flat’s papers to the bank, will not transfer the flat without the bank’s consent, and will refund money to the bank first if the allotment is cancelled. In subvention deals, it also records the builder’s promise to bear pre-EMIs until a date.

Read three clauses closely:

• Who pays if the builder defaults on pre-EMI. When builders stopped paying subvention interest around 2018 and 2019, banks demanded EMIs from buyers. In September 2025 the Supreme Court directed the CBI to investigate this builder-bank arrangement in projects across Noida, Greater Noida and Gurugram.
• Refund on cancellation. The October 2026 Madhu Kudapa ruling held that the buyer recovers what he paid from his own pocket with interest; the unrepaid loan money goes back toward the bank’s claim, not to the buyer.
• Disbursement trigger. Insist that releases follow verified construction, not dates.

Before you apply: project checks

• RERA registration. Confirm the project and the specific tower are registered and the declared completion date is realistic. Check quarterly progress updates.
• Lender approval. Many lenders pre-approve projects after their own legal and technical review. An approved project speeds up sanction, but it is not a guarantee of delivery.
• Title and approvals. Land title, sanctioned plans, and in Noida and Greater Noida the authority lease and dues position, because unpaid land dues have held up registries for years.
• Builder track record. RERA complaints and orders, delays on earlier projects, and any insolvency proceedings.

Step-by-step: getting the loan right

• Step 1: Get an in-principle sanction before booking, so you know your limit and margin requirement.
• Step 2: Book within the RERA 10 percent limit and sign the registered agreement for sale.
• Step 3: Submit the agreement, allotment letter, payment receipts and builder NOC to the bank; sign the tripartite agreement.
• Step 4: Choose pre-EMI or full EMI in writing, and ask the bank for a disbursement schedule linked to the payment plan.
• Step 5: For each demand, check site progress yourself, then request the bank’s release. Object in writing if a demand runs ahead of work.
• Step 6: Keep every disbursement advice and receipt; reconcile them with the builder’s statement every six months.
• Step 7: At possession, ensure the final tranche is released only after the occupancy or completion certificate and a genuine offer of possession.
• Step 8: After registration of the sale or conveyance deed, give the bank the registered deed and get the mortgage recorded.

If the project stalls

• Your loan obligation continues; stopping EMIs damages your credit record even if the builder is at fault.
• Ask the bank in writing to stop further disbursements until progress is verified.
• Claim delay interest or a refund before UP RERA or HRERA. If you seek a refund, expect the bank to be repaid from it first.
• If the builder enters insolvency, file your claim with the resolution professional; homebuyers are financial creditors under the IBC.
• Consider a balance transfer only if another lender will take over a loan on an incomplete project, which many will not.

Red flags

• Bank willing to release a large share upfront on a project still at foundation stage.
• “No EMI till possession” promises that are not in the tripartite agreement.
• Builder insisting you use a particular lender with unusual terms.
• Demand letters for one tower when your tower is behind.
• Requests to pay the margin money in cash or to another company.

As of October 2026

Rates move with RBI policy and lender benchmarks; the figures in the illustration are rounded examples, not offers. Court rulings cited are from 2025 and 2026. Check your lender’s current policy for under-construction disbursement before signing.

Frequently asked questions

Sources

• Into Legal World: Supreme Court on refund of bank loan money, Madhu Kudapa v. Lodha (Oct 2026)
• SCC Online: Supreme Court directs CBI to investigate builder-bank nexus (Sep 2025)
• Reserve Bank of India: Master Circular on Housing Finance (April 2022)
• SND Legal Associates: Liability of borrowers under subvention schemes
• Real Estate (Regulation and Development) Act, 2016 (UP RERA copy)
• Realtynmore: UP RERA urges homebuyers to deposit payments only into designated project accounts (Oct 2026)
• SCC Online: RBI hikes repo rate to 5.50% (Oct 2026)
• SBI MCLR rates effective 15 October 2026
• ADiHomes: Home loan tax benefits, old vs new regime and joint loans
• BnB Legal: Homebuyers as financial creditors under IBC

Updated 25 October 2026. This article is general information, not legal or financial advice; check current rules and project details before you decide.