Home Loan Calculator: Can Prepayment Help You Save Rs 31 Lakh On A Rs 62 Lakh Loan?

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Tue, 06 May 2025 18:12:36 IST
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Home loans are a long-term financial commitment, and while interest rates can fluctuate, there are ways to minimise the impact of high interest payments. When the Reserve Bank of India (RBI) cuts the repo rate, borrowers often hope for a corresponding reduction in their home loan rates. However, if lenders don't adjust their rates, there are still strategies available to save significantly on interest payments. One such effective strategy is prepayment, which allows borrowers to pay off part or all of their loan before the scheduled tenure.


We will explore how prepayment can help reduce your home loan’s interest burden, how to calculate savings, and what conditions you should consider when opting for prepayment. According to financial experts, using prepayment wisely can result in substantial savings over the life of the loan.

What is Prepayment on a Home Loan?

Prepayment refers to paying off a portion or the entire outstanding loan amount before the due date, either in full or through multiple smaller payments. This can significantly reduce the total interest paid over time. However, lenders may have specific terms and conditions attached to prepayment, such as a lock-in period, penalties, or minimum payment requirements. It is crucial to review these terms before making any prepayment decisions.


Lender Conditions for Prepayment

Lenders may impose certain conditions on prepayments, such as:

  1. Lock-In Period: Many lenders have a lock-in period, typically lasting between one and three years, during which you may not be able to prepay your loan or may face penalties for doing so.


  • Prepayment Penalty: If you decide to pay off a significant chunk of your loan early, some lenders may charge a penalty fee, in addition to the regular foreclosure charges. Always check the fine print of your loan agreement to understand these terms.

  • Minimum Prepayment Requirement: Lenders may also have minimum prepayment amounts or require a specific portion of your loan to be prepaid.

    • Impact of Prepayment on EMI and Loan Tenure

    After making a prepayment, borrowers are typically given two options:

    1. Reduce Your EMI: If you choose to reduce your monthly payments, the overall tenure of your loan remains the same, but you save on interest payments. This option is ideal for borrowers looking for immediate relief in their monthly budget.


  • Keep EMI the Same: If you maintain the same EMI amount, both your loan tenure and the interest burden reduce. This option is preferable for those who wish to pay off their loan sooner while continuing to pay the same amount each month.

    • Real-Life Example: Home Loan Prepayment Calculations

    Let’s consider a scenario where a borrower has a Rs 62 lakh home loan at a 10% interest rate, with a tenure of 25 years. Suppose the borrower makes three equal prepayments over the course of the loan.

    Here’s how the calculations break down:

    • Loan Amount: Rs 62 lakh

    • Interest Rate: 10% annually


  • Tenure: 25 years

  • Prepayment: Rs 6.2 lakh (10% of the loan amount), made in three equal instalments of Rs 2,06,667 each.

    • Assuming the borrower starts the loan in May 2025, the prepayments would be made in May 2028, May 2029, and May 2030, following the 3-year lock-in period.

    Impact of Prepayment on EMI and Interest

    Option 1: Reducing EMI

    If the borrower opts to reduce the EMI after making the prepayments, the following results can be expected:

    • New EMI: Rs 5,905 less than the original amount.


  • Interest Saved: Rs 8,61,571.

    • In this scenario, the borrower will continue the same loan tenure, but their monthly payment will be reduced, leading to long-term savings.

    Option 2: Keeping EMI the Same

    If the borrower chooses to keep the EMI constant after the prepayment, the results would be:

    • Interest Saved: Rs 31,35,124.

    • Loan Tenure Reduced: 66 months.


    By opting for this strategy, the borrower saves a substantial amount on interest and shortens the overall loan tenure, ultimately paying off the loan quicker.

    How Much Can You Save by Prepaying Your Home Loan?

    As illustrated, prepayment can help you save thousands of rupees in interest, depending on the size of your loan and how much you prepay. For a Rs 62 lakh home loan, making periodic prepayments can save you up to Rs 32 lakh in interest and reduce your loan tenure by over five years.

    According to experts, prepayment is a smart financial move for anyone who can afford it, as it helps lower the overall cost of borrowing.

    While waiting for interest rate cuts from lenders can be an option, making strategic prepayments is an effective way to reduce your home loan burden. Before proceeding, ensure that you understand all the terms and conditions related to prepayment, including lock-in periods and penalties. Whether you choose to reduce your EMI or shorten your loan tenure, prepayment is an excellent tool for saving money on your home loan.

    Disclaimer: This article is for informational purposes only. Always consult a financial advisor or your lender for advice tailored to your individual circumstances.