Home loan prepayment
Enter what's left on the loan today. Your EMI stays the same and the prepayments shorten the tenure. Extra EMIs are spread evenly through each year.
About this calculator
Why small prepayments do so much
Every rupee you pay above the EMI goes straight to the principal. That principal would otherwise have been charged interest every month for the rest of the tenure, so removing it early cancels a long stream of future interest. On a twenty-year loan, money prepaid in year two avoids eighteen more years of interest.
This is why paying two extra EMIs a year, which feels modest, can cut several years off a home loan. The calculator keeps your EMI unchanged and shortens the tenure, which is the option that saves the most.
Shorten the tenure, not the EMI
After a prepayment most lenders offer a choice: keep the EMI the same and finish earlier, or keep the tenure and reduce the EMI. Keeping the EMI and finishing earlier saves considerably more interest, because the extra amount keeps attacking the principal every month.
Lenders do not always apply the better option by default, so put your instruction in writing and check the revised schedule afterwards.
Prepay or invest?
Prepaying a home loan is a guaranteed, tax-free return equal to your loan's interest rate. An investment has to beat that rate after tax to be the better use of the money, and it carries risk. Where a home loan is at 8.5% and a fixed deposit pays 7% before tax, prepaying saves more than the deposit would earn. Equity may beat it over long periods but can fall exactly when you need the money.
If you claim deductions on home loan principal and interest, factor those in, as they reduce the effective cost of the loan.
Common questions
Is there a charge for prepaying a home loan?
Not for a floating-rate home loan taken by an individual for a non-business purpose, where the RBI does not permit prepayment charges. A fixed-rate loan may carry one, so check your agreement.
When is the best time to prepay?
The earlier, the more it saves. The interest saved depends on how long the money would otherwise have stayed outstanding, so a prepayment in year two saves far more than the same amount in year twelve.
Should I reduce the EMI or the tenure?
Reducing the tenure saves more interest, because keeping the EMI unchanged means the extra amount keeps paying down principal every month. A lower EMI eases the monthly budget instead. Which matters more depends on your situation.
Does prepaying affect my tax deductions?
Closing the loan sooner means fewer years of interest, so any deduction you claim on home loan interest ends earlier too. Weigh the deduction against the interest saved, and remember a deduction only returns a fraction of what the interest costs you.