What a prepayment actually does
A prepayment goes straight to the principal. Every rupee of principal you clear today stops earning interest for every month it would otherwise have stayed on the loan, which is why a part payment early in a home loan saves far more than the same amount near the end.
After a prepayment your lender recasts the loan one of two ways: it keeps the EMI and shortens the tenure, or it keeps the end date and lowers the EMI. This calculator works out both from the same month-by-month simulation, so you can compare them on your own loan before you ask for either.
Reduce the EMI or the tenure? A worked example
Take ₹30,00,000 outstanding at 8.5% with 20 years left, so an EMI of about ₹26,035. Prepaying ₹2,00,000 and keeping the EMI clears the loan 3 years early and saves about ₹7,56,579 of interest.
Put the same ₹2,00,000 towards a lower EMI instead and the instalment falls to about ₹24,299 for the full 20 years, saving about ₹2,16,555. Keeping the EMI saves more because the balance falls faster every month; lowering it frees up cash flow now. Which matters more is your decision.
A regular top-up works the same way. Adding ₹5,000 a month to the same loan, with no lump sum, clears it about 6 years and 4 months early and saves roughly ₹11.7 lakh of interest.
Charges and your lender
Under RBI rules, banks and housing finance companies cannot charge a prepayment or foreclosure fee on a floating-rate loan taken by an individual for a non-business purpose, whatever the source of the money and with no lock-in period. On a fixed-rate loan the lender’s own policy applies, and it has to be stated in your sanction letter and key facts statement.
This calculator assumes the rate stays where you enter it. A floating rate will move over the life of the loan, so treat the result as an estimate and re-run it when your rate resets.
Is it better to reduce the EMI or the tenure after a prepayment?+
Keeping the EMI and shortening the tenure saves more interest, because the balance keeps falling at the old pace. Lowering the EMI saves less but eases your monthly budget. The calculator shows both on your own loan so you can see the size of the difference before choosing.
How much interest does a ₹2 lakh prepayment save on a ₹30 lakh home loan?+
At 8.5% with 20 years left, prepaying ₹2,00,000 and keeping the EMI saves about ₹7,56,579 and ends the loan 3 years early. Using it to lower the EMI instead saves about ₹2,16,555. The exact figure depends on your rate and how many years are left.
Do banks charge a penalty for prepaying a home loan?+
Not on a floating-rate home loan taken by an individual for a non-business purpose: RBI rules bar prepayment and foreclosure charges on those. For a fixed-rate loan the lender’s policy applies, and it must be disclosed in the sanction letter and key facts statement.
When is the best time to prepay a home loan?+
The earlier the better in terms of interest saved, because early EMIs are mostly interest and a prepayment removes all the interest that principal would have attracted over the remaining years. Whether prepaying suits you also depends on your emergency savings and other goals.
Does prepaying affect my tax deduction on home loan interest?+
It can. Under the old regime, interest on a self-occupied home loan is deductible up to ₹2,00,000 a year, so cutting the interest may cut the deduction. The new regime gives no deduction for it. Weigh the interest you save against any tax benefit you lose.