Home Loan Prepayment Calculator

How prepayment cuts your home loan interest

Interest on a home loan is computed every month on the outstanding principal. Pay down the principal earlier than scheduled and every month afterwards accrues less interest — which means a larger slice of every EMI starts going to principal too. The effect compounds over the remaining tenure, and the closer to the start of the loan you prepay, the bigger the savings.

This calculator runs the full month-by-month amortization in both scenarios — your current schedule, and the same schedule with your prepayment applied — and reports the gap as interest saved plus the number of months shaved off the payoff.

Lump-sum prepayment vs increasing your EMI

Two ways to prepay, two different cash-flow shapes:

• One-time lump sum — typical when an annual bonus, ESOP vest, or matured FD lands in your account. Best used early: a ₹5 lakh prepayment in year 1 of a 20-year loan saves materially more than the same ₹5 lakh in year 15, because the principal it removes would otherwise accrue interest for the full remaining tenure.
• Increasing your monthly EMI — adding even ₹5,000–₹10,000 on top of the scheduled EMI every month is mathematically equivalent to a long sequence of small prepayments. It compounds quietly and can shave 3–5 years off a 20-year loan without ever feeling like a big outflow.

Most lenders treat both as principal reduction. Check that your bank applies the extra amount to the principal and not to "advance EMI" — the second mode parks your money without reducing interest.

If your current bank's rate has drifted materially above the market — or you have a fixed-rate loan you're stuck on — a home loan balance transfer can be the bigger lever than prepayment alone. The guide covers the break-even math, all-in switching costs, and the RBI 2025 rule that makes the move free for individual borrowers on floating-rate loans.

Prepayment penalty — when does it apply?

RBI guidelines on prepayment charges. The original 2014 circular abolished foreclosure charges on floating-rate housing loans to individuals; the Pre-payment Charges on Loans Directions, 2025 (applicable to loans sanctioned or renewed on or after 1 January 2026) extend the regime materially:

• Floating-rate home loans to individual borrowers — zero foreclosure or prepayment charge. Partial or full. Already the regime for retail home loans since 2014; reaffirmed in the 2025 Directions.
• Floating-rate LAP, car loans, and other floating-rate loans to individual borrowers — also zero charges for sanctions / renewals from 1 January 2026, under the 2025 Directions. This is new — pre-2026, only housing loans were covered.
• Fixed-rate home loans — banks can still levy a prepayment penalty (typically 2–4% of the prepaid amount; capped at 3% on fixed-rate LAP under the 2025 Directions). Read the sanction letter before prepaying.
• Non-individual borrowers (companies, partnerships, HUFs, proprietorships) — the 2025 Directions don't extend the zero-charge regime to them. Contracted charges (often 2–4%) continue to apply.
• Lock-in periods — some lenders bar prepayment in the first 6–12 months of the loan even on floating-rate products. A bank policy, not regulatory.

Reduce tenure or reduce EMI — which option to ask for

After a prepayment, banks typically let you pick one of two outcomes:

1. Keep the EMI, reduce the tenure — the loan ends earlier, total interest paid drops sharply. This is what the calculator above models in lump-sum mode. Pick this if your cashflow comfortably absorbs the current EMI.
2. Keep the tenure, reduce the EMI — monthly outflow falls, but interest savings are much smaller because you're stretching the smaller balance over the full remaining tenure. Pick this only if cashflow is tight or you have other higher-cost debt to service.

For the same ₹5 lakh prepayment on a ₹40 lakh / 15-year / 8.5% loan, "reduce tenure" saves materially more interest than "reduce EMI" — usually 2–3× as much over the life of the loan.

When prepayment makes sense — and when it doesn't

The decision rule is the after-tax return on your idle corpus vs the after-tax cost of the home loan:

• Prepay when your investable corpus is sitting in a savings account or 6–7% FD (post-tax: ~4.2–4.9% in the 30% slab). A home loan at 8.5% is a guaranteed positive spread against that.
• Don't prepay when the corpus is invested in equity mutual funds with a long horizon (10+ years), or in instruments compounding above the loan rate after tax. Equity LTCG at 12.5% on returns above ₹1.25 lakh per year typically beats prepayment math.
• Don't prepay if it drains your emergency fund. Keep at least 6 months of expenses + EMIs in liquid form. A home is illiquid; refinancing or topping up against it is slow and expensive.
• Tax-deduction loss — under the old regime, interest paid on a self-occupied home loan saves up to ₹2 lakh/year under Section 24(b) and principal repaid saves up to ₹1.5 lakh under 80C. Prepaying reduces both. In a 30% slab, this lowers the effective loan rate by roughly 2–3 percentage points — worth modeling before prepaying just to shave headline interest.

For modeling the EMI on the post-prepayment balance, switch to the Home Loan EMI calculator. If you're still in the buying stage, the Home Loan Eligibility calculator helps size the loan against RBI LTV norms first.