Loan Prepayment Calculator
Find out exactly how much interest you save and how many months you cut by prepaying your home loan
Why prepaying in year 3 saves more than prepaying in year 15
In the early years of a home loan, your EMI is mostly interest — on a ₹50 lakh loan at 8.5% for 20 years, the first EMI of ₹43,391 contains ₹35,417 in interest and only ₹7,974 toward principal. That's 82% going to the bank. A ₹2 lakh prepayment in year 3 eliminates principal that would have generated ₹3.5+ lakh in interest over the remaining tenure. The same prepayment in year 15 saves barely ₹40,000 because the remaining interest pool is much smaller.
Reduce tenure or reduce EMI — which saves more?
Reduce tenure
Keep the same EMI but finish the loan earlier. This maximizes interest savings because every future month of interest is eliminated. On a ₹40L loan at 9% for 20 years, a ₹3L prepayment in year 2 saves ₹7.2 lakh in interest and cuts tenure by 18 months.
Best for: maximizing total savingsReduce EMI
Keep the same tenure but lower your monthly payment. This improves cash flow and reduces financial stress. The same ₹3L prepayment would reduce the EMI by roughly ₹2,700/month — helpful if you're facing income uncertainty or want to redirect money to other investments.
Best for: improving monthly cash flowRBI mandates zero prepayment charges on floating-rate home loans
Since 2014, the Reserve Bank of India has prohibited banks from charging any foreclosure or prepayment penalty on floating-rate home loans taken by individuals. This means you can prepay any amount — partial or full — at any time without extra charges. Fixed-rate loans may still carry a 1-3% penalty. Car loans and personal loans typically have a 2-5% prepayment fee regardless of rate type, so check your loan agreement before prepaying non-home loans.
When prepaying your loan is actually a bad idea
You don't have an emergency fund
Never use your last savings to prepay. Keep at least 6 months of expenses liquid before directing surplus to loan prepayment. A medical emergency or job loss while being cash-poor is far more expensive than the interest you'd save.
You have higher-interest debt
If you're carrying credit card debt at 36-42% or a personal loan at 14-18%, pay those off first. Prepaying an 8.5% home loan while paying 40% on credit cards is mathematical self-harm. Always attack the highest-rate debt first.
You're near the end of the loan tenure
In the final 3-4 years of a home loan, most of your EMI already goes toward principal. Prepaying at this stage saves very little interest — the bank has already collected most of it. Your money would grow faster in a mutual fund or even an FD.
Frequently Asked Questions
Does prepayment reduce EMI or tenure?
Most Indian banks offer both options. Reducing tenure saves more interest overall because the principal reduces faster. Reducing EMI improves monthly cash flow. This calculator shows interest saved by reducing tenure, which is the more financially beneficial option in most cases.
When is the best time to prepay a home loan?
Earlier is better. In the first few years of a home loan, your EMI primarily covers interest rather than principal. A prepayment made in year 1–5 reduces the outstanding principal significantly, leading to much larger interest savings over the remaining tenure.
Is there a penalty for prepaying home loans in India?
As per RBI guidelines, banks cannot charge prepayment penalties on floating-rate home loans from individuals. Fixed-rate loans may carry a prepayment charge of 1–3%. Always verify with your lender before prepaying.
How does partial prepayment work?
A partial prepayment is a lump sum payment made toward the principal on top of your regular EMI. This reduces your outstanding balance immediately, after which the bank recalculates either your EMI or remaining tenure depending on your preference.
Is it better to invest the money or prepay the loan?
Compare the after-tax return on your investment against your loan interest rate. If your home loan is at 8.5% and you can earn 12% in equity mutual funds, investing might seem better. But loan interest is a guaranteed cost while investment returns are not. For risk-averse individuals, prepaying a loan is effectively a guaranteed 8.5% return — hard to beat consistently after tax.
Key Terms
Prepayment
A lump sum payment made toward the loan principal over and above regular EMIs, reducing the outstanding balance and future interest.
Floating Rate
An interest rate that changes with the RBI repo rate or bank's benchmark lending rate. RBI mandates zero prepayment charges on floating-rate home loans.
Outstanding Principal
The remaining loan balance at any point in time, after accounting for all EMIs and prepayments made.
Tenure Reduction
The decrease in total loan duration achieved by prepaying — keeping the same EMI but paying off the loan earlier.
Amortization
The schedule showing how each EMI splits between interest and principal. Early EMIs are mostly interest; prepayment shifts this ratio in your favor.