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About the Home Loan Prepayment Calculator
Prepayment is the single most effective thing you can do to a home loan. Because interest accrues on the outstanding balance, every rupee you put in early stops all the interest that rupee would have attracted for the rest of the tenure.
The timing matters enormously. A ₹5 lakh part payment in year two of a twenty-year loan saves roughly three times what the same amount saves in year twelve. And when you do prepay, insist that the lender reduces the tenure rather than the EMI — same monthly outgo, dramatically more saving.
The formula
Because interest is charged on the reducing balance, every rupee of prepayment stops all future interest on that rupee.
Things worth knowing
Frequently asked questions
Not on floating-rate loans taken by individuals — the RBI prohibits foreclosure and prepayment charges on those. Fixed-rate loans, and loans to non-individuals, can attract a charge of around 2%.
Reduce the tenure. Keeping the EMI unchanged after a part payment means the extra goes entirely to principal, which is where the large savings come from. Reducing the EMI feels better monthly but costs much more overall.
Prepaying gives a guaranteed, risk-free return equal to your loan rate — around 8.5% tax-free in effect. Beating that reliably after tax requires equity risk. Under the old regime, the interest deduction under Section 24(b) shifts the maths slightly in favour of investing; under the new regime it does not.
As early as possible. In the first years almost all of your EMI is interest, so a prepayment then removes the maximum amount of future interest.
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