A prepayment is any amount you pay towards your loan over and above your regular EMIs. It goes straight towards the principal, so every rupee you prepay stops charging interest for the rest of the loan. On a long home loan, even small yearly prepayments can save lakhs of rupees and cut years off the tenure.
How to use the loan prepayment calculator
- Enter your outstanding loan amount, the interest rate and the remaining tenure.
- Enter the prepayment amount.
- Choose whether you will prepay every year or only once.
- Choose the year in which you make the first prepayment.
The calculator keeps your EMI the same and reduces the tenure, which is what saves the most interest. It shows the interest saved, the new loan end date and a year-wise schedule with each prepayment.
Example
You have a home loan of ₹30,00,000 at 8.5% for 20 years. Your EMI is ₹26,035.
- Without prepayment, you pay ₹32,48,327 in interest.
- If you prepay ₹1,00,000 at the end of every year, you pay only ₹17,63,834 in interest.
- Interest saved: ₹14,84,494
- The loan closes in 11 years 9 months instead of 20 years, 8 years 3 months sooner.
Even a one-time prepayment of ₹5,00,000 at the end of year 2 saves ₹12,90,458 and ends the loan 5 years 8 months early.
How much difference does the amount make?
₹30 lakh loan at 8.5% for 20 years, prepaying every year from the end of year 1:
| Yearly prepayment | Interest saved | Tenure reduced by |
|---|---|---|
| ₹25,000 | ₹5,98,023 | 3 years 2 months |
| ₹50,000 | ₹9,90,915 | 5 years 4 months |
| ₹1,00,000 | ₹14,84,494 | 8 years 3 months |
| ₹2,00,000 | ₹19,92,719 | 11 years 5 months |
Reduce tenure or reduce EMI?
After a prepayment, most banks let you either keep the EMI and shorten the tenure, or keep the tenure and lower the EMI. Reducing the tenure saves much more interest, which is why this calculator uses that option. Choose a lower EMI only if you need more monthly cash flow.
Things to know before you prepay
- No penalty on floating-rate loans. As per RBI rules, banks cannot charge prepayment charges on floating-rate loans taken by individuals for non-business purposes. Fixed-rate loans may carry a fee.
- Prepay early. Interest is highest in the early years, so prepayments made early save the most.
- Keep an emergency fund first. Money paid into a loan is hard to get back quickly.
- Tax benefits. If you claim a deduction for home loan interest under the old tax regime, prepaying reduces that deduction. The interest saved is usually still larger.
- Prepay or invest? If your investments can reliably earn more after tax than your loan rate, investing may grow your wealth more. Prepaying gives a guaranteed "return" equal to your loan rate.
FAQ
Is it good to prepay a home loan?
Usually yes, especially in the early years and when your loan rate is high. It saves interest and makes you debt-free sooner. Keep an emergency fund and your other goals on track first.
Should I reduce EMI or tenure after prepayment?
Reducing the tenure saves more interest. Reducing the EMI gives you more cash every month. Choose based on what you need.
Are there charges for prepaying a loan?
Not on floating-rate loans taken by individuals for non-business purposes. Check your loan agreement for fixed-rate or business loans.
How is this different from the EMI calculator?
The EMI calculator shows the EMI and interest for a new loan. This calculator shows how extra payments change an existing loan.