Home Loan Prepayment Calculator
How much a part-prepayment saves, whether to cut the EMI or the tenure, and whether investing the money would leave you richer.
Prepaying ₹5 lakh after 3 years of a ₹50 lakh, 20-year home loan at 8.5% saves ₹13,19,639 of interest and ends the loan 41 months early if you keep the EMI, or saves ₹4,46,858 if you cut the EMI instead. Investing the ₹5 lakh at 10% a year after tax would leave you ₹3,76,464 better off by the loan's end; at 7% prepaying wins by ₹4,67,585.
The words on this page, explained simply
New to this? Here is what each term means, in plain English.
- Prepayment
- Paying back part of the loan early, in a lump sum. It cuts the amount you owe, so you pay less interest. There is no charge on floating-rate loans to individuals.
- EMI (equated monthly instalment)
- The same amount you pay the lender every month until the loan is repaid. Each EMI pays that month's interest first; the rest reduces what you owe.
- Tenure
- How long you take to repay the loan. A longer tenure means a smaller EMI but much more interest in total.
- Principal
- The amount you borrowed, or the part of it you still owe. Interest is charged on this.
- Expected return
- How much you guess your money will grow each year, on average. It is a guess, not a promise: markets rise and fall. Try a low and a high number to see the range of outcomes.
- Floating rate
- A loan rate that changes with a benchmark such as the repo rate, so your EMI or tenure can change during the loan. A fixed rate stays the same.
- Old tax regime
- The older income tax system that allows deductions and exemptions such as 80C and HRA, at higher tax rates. The new regime, the default, has lower rates but few deductions.
A part-prepayment goes straight to the amount you owe, so every later EMI carries less interest. The lender then either keeps your EMI and shortens the loan, or keeps the end date and lowers the EMI. Keeping the EMI saves more.
Cut the tenure or the EMI?
Keeping the EMI and cutting the tenure saves the most interest, because the balance falls faster every month after. Cutting the EMI helps if your budget is tight, but saves less.
| ₹50 lakh, 8.5%, 20 years; ₹5 lakh prepaid after 3 years | Interest saved | Result |
|---|---|---|
| Keep the EMI, cut the tenure | ₹13,19,639 | loan ends 41 months early |
| Keep the tenure, cut the EMI | ₹4,46,858 | EMI falls to ₹38,750 |
Prepay or invest?
Prepaying earns you the loan's interest rate, guaranteed. Investing earns whatever the investment returns after tax, which is not guaranteed. The calculator compares them in rupees on the loan's original end date: invest the lump sum and keep paying the loan, or prepay and then invest the EMI you no longer pay once the loan ends.
Roughly, prepay when your expected after-tax return is below the loan rate. In the old tax regime, the ₹2 lakh interest deduction lowers the loan's real cost, which tilts the answer towards investing.
Charges
RBI bars prepayment and foreclosure charges on floating-rate loans to individuals for non-business purposes, so most home loans can be prepaid at no cost. Fixed-rate loans may carry a charge; check your agreement.
Key takeaways
- Keeping the EMI and shortening the loan saves the most interest.
- Prepay when your expected after-tax return is below the loan rate.
- No prepayment charges on floating-rate home loans to individuals.
Frequently asked questions
Is it better to reduce EMI or tenure after prepayment?
Tenure, if you can keep paying the same EMI. On the example on this page that saves ₹13,19,639 against ₹4,46,858 for cutting the EMI.
Should I prepay my home loan or invest?
Compare the loan rate with what you expect to earn after tax. If the investment's after-tax return is higher, investing tends to win, but it isn't guaranteed; prepaying is a sure return equal to the loan rate.
Are there charges for prepaying a home loan?
Not on a floating-rate home loan taken by an individual: RBI rules bar them. Fixed-rate loans can carry a prepayment charge.