How to use this prepayment calculator
- Enter your loan amount, interest rate, and original tenure.
- Set the extra monthly payment you can afford — even ₹2,000–5,000 extra makes a difference.
- Choose when prepayment starts (month 1 = from the very beginning).
- View how much interest and time you save, plus a side-by-side chart and table.
How does loan prepayment work?
When you pay extra each month, the entire additional amount goes toward reducing your outstanding principal. Since interest is calculated on the remaining balance, a lower principal means less interest in every subsequent month. This creates a compounding savings effect.
For example, on a ₹25 lakh home loan at 8.5% for 20 years, paying just ₹5,000 extra per month can save over ₹8 lakh in interest and reduce your tenure by 5+ years.
Reduce tenure vs reduce EMI
| Option | How it works | Best for |
|---|---|---|
| Reduce tenure | Keep EMI same, loan ends earlier | Maximising total interest savings |
| Reduce EMI | Keep tenure same, lower monthly payment | Improving monthly cash flow |
This calculator uses the reduce tenure approach, which saves the most interest.
Frequently asked questions
Is it better to prepay or invest the extra money?
If your investment returns (after tax) exceed the loan interest rate, investing is mathematically better. For example, if your home loan is at 8.5% and your equity SIP returns 12%, investing wins. But prepayment offers guaranteed, risk-free savings — there's psychological value in being debt-free sooner.
When is the best time to prepay a loan?
Earlier is always better. In the first few years, most of your EMI goes toward interest. Prepaying early reduces the principal when the interest burden is highest, maximising your savings.
Can I make a one-time lump sum prepayment instead?
Yes. Most lenders allow both partial lump sum prepayments and increased monthly payments. A lump sum prepayment (e.g., from a bonus) can have an even bigger impact than small monthly extras.
Are there any penalties for prepaying a home loan?
In India, RBI prohibits banks from charging prepayment penalties on floating-rate home loans. Fixed-rate loans may have a 2–3% charge. Always check your loan agreement.