Home Loan Prepayment Calculator

What Is Home Loan Prepayment?

Home loan prepayment is paying a lump sum toward the outstanding principal on top of your regular EMI. The balance drops immediately, so less interest accrues in subsequent months.

On a Rs 50 lakh loan at 8.5% for 20 years, prepaying Rs 5 lakh at month 12 cuts total interest from Rs 54.1 lakh to Rs 45.9 lakh, a saving of Rs 8.2 lakh.

There are two types: part prepayment (loan continues) and full prepayment (loan closes). Both are penalty-free on floating-rate loans per RBI's 2019 guidelines. Fixed-rate loans typically charge 2%.

Early prepayment saves more interest. A Rs 5 lakh prepayment in year 1 saves twice as much as the same amount in year 10.

How Prepayment Saves Interest: The Math

Home loan interest is calculated on the reducing balance. The EMI formula is:

EMI = P x r x (1+r)^n / ((1+r)^n - 1)
where:
  P = loan principal
  r = monthly rate = annual rate / 12 / 100
  n = tenure in months

Outstanding balance after M months of EMIs:

Balance(M) = P x (1+r)^M - EMI x ((1+r)^M - 1) / r

For a Rs 50 lakh loan at 8.5%, the outstanding balance after 12 months is approximately Rs 49.38 lakh. A Rs 5 lakh prepayment reduces it to Rs 44.38 lakh.

In reduce-tenure mode, the EMI stays at Rs 43,391, but tenure drops to 192 months (from 240), saving 48 months and Rs 8.2 lakh in interest.

In reduce-EMI mode, the EMI drops to Rs 39,640, but tenure stays at 228 months. Total interest is higher because the loan runs longer.

Reduce Tenure vs Reduce EMI: Which Is Better?

Reduce tenure saves more interest because you eliminate future months entirely. Reduce EMI keeps the same tenure but lowers monthly outgo.

For the same prepayment amount, tenure reduction always saves more interest than EMI reduction. The math is clear.

The comparison on a Rs 50 lakh loan at 8.5%, Rs 5 lakh prepayment at month 12:

Choose reduce EMI only if you genuinely need the cash flow relief. If your job is stable and your current EMI is manageable, reduce tenure. The Rs 1.6 lakh difference in interest savings between the two modes on this example grows larger as the loan amount increases.

Home Loan Prepayment Charges: Bank Comparison

Per RBI's guidelines effective October 2019, no bank can charge prepayment penalties on floating-rate home loans to individual borrowers. This applies to both part and full prepayment. Fixed-rate home loans are exempt from this rule and typically carry a 2% penalty.

Rates are as of September 2026 and subject to change. Always verify directly with your lender before making a prepayment, especially if your loan has both floating and fixed rate segments.

Best Time to Make a Prepayment

The best time is as early as possible. In year 1 of a 20-year loan at 8.5%, 71% of each EMI is interest. By year 10, the split is 50-50. Prepay early to cut years with high interest costs.

A Rs 10 lakh prepayment on a Rs 50 lakh loan at 8.5% in year 1 saves approximately Rs 16 lakh in interest and cuts tenure by 8 years. This is a guaranteed return that no fixed deposit can match.

If you are in the old tax regime claiming Section 24(b), your effective interest cost drops by your tax bracket. At 30% tax, an 8.5% loan effective rate is 5.95%. Equity investments above 6% may match prepayment benefit in this case.

Home Loan Interest Rates: Choosing Between Banks

As of September 2026, SBI starts at 8.25%, HDFC Bank at 8.35%, and ICICI at 8.40%. On a Rs 50 lakh loan, this 15-basis-point difference costs approximately Rs 1.3 lakh more in total interest with ICICI.

Compare the spread over RBI repo rate, reset frequency, and rate-cut history. SBI and HDFC pass on RBI cuts faster than smaller banks. During 2025's cut cycle, SBI moved within 1-2 months while others took 3-4 months.

For first-time buyers, SBI and HDFC offer the lowest rates. ICICI and Axis are strong for salaried employees with employer tie-ups. Choose based on your job type and 2-3 year rate outlook.

Prepayment Strategy: How Much Should You Prepay?

Keep 6 months of living expenses as liquid cash before prepaying regularly. Once that buffer exists, direct bonuses and windfalls toward prepayment.

A 15-20% prepayment in year 1 is effective. On Rs 50 lakh, a Rs 7.5-10 lakh prepayment in year 1 saves Rs 11-16 lakh in interest.

Small regular prepayments work too. Five years of Rs 50,000 annual prepayments total Rs 2.5 lakh but save Rs 4.1 lakh in interest.

Don't prepay if your emergency fund is thin or job is unstable. Clear personal loans (12-24%) and credit card debt (18-36%) first. A 20% personal loan rate always beats 8.5% home loan prepayment.

How to Use This Prepayment Calculator

The calculator requires four inputs and produces a complete savings breakdown in real time. Here is the exact sequence:

1. Set the original loan amount: Use the slider or click the value button to type. For example, Rs 50 lakh for a typical metro home purchase.
2. Enter the annual interest rate: Use your actual loan rate. SBI floating rate starts at 8.25% as of July 2026; HDFC starts at 8.35%. Adjust to match your sanction letter.
3. Set the original tenure: The tenure at which the loan was sanctioned. Use the year preset buttons (5Y, 10Y, 20Y) for quick selection.
4. Enter the prepayment amount: The lump sum you plan to pay. Start with what you have available and see the impact before committing.
5. Set prepayment month in More settings: Click "More settings" and drag the slider to indicate when in the tenure you will prepay. Month 12 means after your first year of EMIs.
6. Toggle between Reduce Tenure and Reduce EMI: Use the tab at the top of the calculator card. Compare both modes to decide which suits your situation.

Common Mistakes to Avoid When Prepaying

The biggest mistake is waiting until year 10 to start prepaying. A Rs 5 lakh prepayment at month 12 saves Rs 8.2 lakh; that same amount at month 120 saves only Rs 2.8 lakh.

Never deplete your emergency fund to prepay. A home loan at 8.5% is cheap money compared to a personal loan at 15-20%. Keep 6-12 months of living expenses liquid before prepaying.

Confirm your loan type before prepaying. A 2% penalty on a Rs 10 lakh prepayment is Rs 2 lakh of your interest savings gone. Fixed-rate loans charge penalties; floating-rate loans don't.

Choose reduce EMI if your salary is variable. Choose reduce tenure if your salary is stable. Base your choice on your income pattern, not on what sounds better.

Step-by-Step Guide to Processing a Prepayment

Once you have decided on the prepayment amount, here is the exact process:

1. Gather your loan documents: Collect your loan account number, original sanction letter, and recent passbook or statement.
2. Check your loan type: Confirm whether your loan is floating or fixed rate. Floating rate has zero prepayment charges; fixed rate typically charges 2%.
3. Visit the bank or use net banking: Most banks allow prepayment via net banking (fastest option) or in-branch with cheque. Net banking transactions are instant and require no paperwork.
4. Specify the prepayment amount and mode: Clearly mention whether you want to reduce tenure (same EMI, shorter loan) or reduce EMI (same tenure, lower monthly payment).
5. Make the payment: Transfer the funds via NEFT, cheque, or demand draft. The bank will deduct the amount from your loan principal immediately.
6. Request a revised amortization schedule: Ask the bank for an updated schedule showing the new EMI, new tenure, or new total interest, depending on your mode choice.
7. Update your personal records: Keep a copy of the revised schedule. Some borrowers update their home accounting software to track progress.

Strategy for Multiple Prepayments Over Time

RBI allows unlimited prepayments per year. Make smaller prepayments aligned with bonuses instead of one large payment.

Example: on a Rs 50 lakh loan at 8.5%, prepay Rs 50,000 every April on your bonus. Over 5 years, this accumulates to Rs 2.5 lakh and saves Rs 4.1 lakh in interest.

Salaried employees can plan prepayments around April bonuses. Freelancers should wait until they have 6-12 months emergency cash before starting.

The total amount matters more than frequency. Consistency over time beats waiting for one large sum.

Frequently Asked Questions