Home Loan Prepayment Calculator

Prepayment is one of the few ways in which you can either reduce or consolidate your debt by repaying the loan in part (or full) before the completion of full tenor of the loan. It can not only reduce your debt but can also save you from paying excessive money in the form of interest.

Home loan calculator with prepayment helps you determine the amount you can save using prepayment. The easy to use calculator requires you to input fields namely:

  • Outstanding amount
  • Tenor
  • Rate of interest
  • Prepayment amount

Based on the values you input into the fields, you can view the new EMI to the right of the calculator post prepayment.

What is Home Loan Prepayment?

Home loan prepayment refers to the act of prepaying a part or all of the outstanding principal amount of a home loan before its scheduled due date. Essentially, it means making an early repayment of the loan amount either in part or in full before the tenure of the home loan comes to an end.

Prepayment can be done in two ways- full prepayment and partial prepayment. In full prepayment, the entire outstanding balance of the home loan is paid off in one go, while in partial prepayment, a certain amount is paid towards the principal outstanding.

There are several benefits of making prepayments on a home loan. Firstly, it reduces the overall interest burden as the outstanding principal amount reduces, which means lower interest on the remaining balance. Secondly, it helps in bringing down the total cost of the loan as the interest component decreases with the reduction of the principal amount. Finally, prepayment can help borrowers get out of debt faster, which can save them a lot of time and money.

However, before making prepayments on a home loan, borrowers should take into account the prepayment charges, if any, that may be applicable. Most banks and financial institutions charge a nominal fee for making prepayments on a home loan. These charges are typically specified in the loan agreement and may vary from one lender to another.

Overall, prepaying your home loan can have significant benefits in terms of saving on interest costs and reducing the loan tenure. However, borrowers should carefully consider the costs and charges involved before making a decision.

Importance of home loan prepayment

Paying off your home loan ahead of schedule through prepayments offers several key benefits:

  1. Interest savings:
    Reduces the total interest paid over the loan tenure, resulting in significant savings.
  2. Faster debt clearance:
    Accelerates the journey to full homeownership, freeing you from debt sooner.
  3. Financial freedom:
    Allows for increased financial flexibility by eliminating a major financial obligation.
  4. Improved credit score:
    Demonstrates financial discipline, positively impacting your credit score.
  5. Potential interest rate savings:
    May open opportunities to negotiate lower interest rates or refinance the loan.
  6. Reduced stress:
    Minimises long-term financial stress and uncertainty associated with debt.
  7. Investment opportunities:
    Creates room for investing in other avenues once the home loan burden is lifted.
  8. Home equity build-up:
    Accelerates the accumulation of home equity, increasing overall property ownership.

How does a Home Loan Prepayment Calculator work?

You can calculate your EMI amount after you do part-prepayment. You just need to enter your outstanding loan amount, Tenure, rate of interest, and your part-prepayment amount. Once you enter these details, you can then find your new EMI.

What is the formula to calculate home loan prepayment?

The formula to calculate home loan prepayment typically involves calculating the new outstanding loan balance after making the prepayment. Here's the general formula:

Prеpaymеnt Savings = (p × t × (1+t)^x) / ((1+t)^x - 1) - (EMI × x)

Here:

P = Principal loan amount

T = Monthly intеrеst ratе

x = Rеmaining loan tеnurе in months

EMI = Equatеd Monthly Installmеnt

Things to Consider Before Making Home Loan Prepayment

Making prepayments on a home loan can be a financially smart decision. It helps in reducing the outstanding principal amount, interest burden, and the repayment tenure. However, before making any prepayment, there are a few things that the borrower should consider. These include:

1. Prepayment Charges: Before making a prepayment, borrowers need to check the prepayment charges mentioned in their home loan agreement. Banks and financial institutions typically charge a fee on prepayment. Therefore, borrowers should calculate if the cost of the prepayment fee outweighs the benefits of making the prepayment.

2. Tax Implications: Prepayments on home loans can also have tax implications. Under Section 24 of the Income Tax Act, the interest portion of the home loan EMI is eligible for tax deduction up to Rs 2 lakhs. If a borrower opts for prepayment of a significant portion of the outstanding home loan, it may reduce the tax deductions they are eligible for.

3. Future Expenses: If the borrower is likely to require funds for a significant expenditure in the near future, such as a child's education or marriage, they should plan their finances accordingly. If the funds utilized for prepayment of home loans are needed in the future, it may result in additional borrowing costs.

4. Home Loan Tenure: If the borrower has a long repayment tenure, making a prepayment may help them save on interest and reduce the tenure. Therefore, borrowers need to evaluate the impact of making prepayment on the loan tenure.

5. Availability of Liquid Assets: Before making a prepayment, borrowers should evaluate the liquidity of their assets. If the borrower has low liquidity, they may not have enough funds to cushion against future emergencies. Therefore, they should weigh the potential benefits of making a prepayment against the risk of future emergencies.

In conclusion, borrowers need to evaluate all these factors before deciding to make a prepayment on their home loan. While prepayment can help reduce the interest burden and loan tenure, there may be other costs and implications that need to be considered.

What are the benefits of using a home loan prepayment calculator?

  • Helps estimate the impact of prepaying on loan tenure: By using a prepayment calculator, borrowers can understand how making extra payments towards their home loan can reduce the overall tenure of the loan.
  • Saves money on interest: It allows borrowers to see how prepayments can significantly reduce the total interest paid over the life of the loan, potentially saving them a substantial amount of money.
  • Assists in financial planning: By providing a clear breakdown of how prepayments affect the loan balance and repayment schedule, borrowers can better plan their finances and decide on the most suitable prepayment strategy.
  • Enables comparison of scenarios: Borrowers can use the calculator to compare different prepayment scenarios, such as varying prepayment amounts or frequencies, to determine the most beneficial approach for their financial situation.
  • Empowers informed decision-making: Armed with the information provided by the prepayment calculator, borrowers can make well-informed decisions regarding their home loan prepayment strategy, optimizing their financial outcomes.

Who is an eligible candidate to make a home loan prepayment?

Any individual with a home loan is entitled to make full or partial prepayments towards the remaining balance. However, the extent of this flexibility hinges on the policies set by the lender. Some lenders may not accommodate partial prepayments, while others do.

Therefore, it's crucial to carefully examine the prepayment terms outlined in the agreement prior to signing the home loan contract. If the agreement allows for such actions, you are eligible to make partial prepayments. Ensure to verify if the lender imposes any fees for prepayments beforehand. Knowing about potential penalties in advance is prudent before initiating partial payments.

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Frequently asked questions

What is home loan part-prepayment?

Prepayment refers to the early repayment of a loan. It is an instalment payment before its due date and is usually a lump sum amount. The minimum sum required to initiate the prepayment of your home loan with Bajaj Finserv is the equivalent of three of your EMIs. Since you pay a part of your dues before times, a prepayment can result in a reduced tenor or a reduction in your EMI amount.

Is Home loan EMI calculator and part prepayment calculator same?

No, Home loan part-prepayment calculator and Home loan EMI calculator both are used for different purpose. The part-prepayment calculator helps you to calculate your part-prepayment amount while the EMI calculator helps you to calculate your EMIs. This calculator can also be used for calculation of EMI with a prepayment option.

What is a home loan part-prepayment calculator?

The Home Loan Part-Prepayment Calculator is a tool that shows the positive impact of early repayment of your loan.

How to use the home loan part-prepayment calculator?

All you need to do is simply enter your loan details and then enter the amount you wish to pre-pay. Do keep in mind that this amount will have to be at least three times the calculated EMI.

You can move the sliders to your left or right to adjust the values or you can directly type the values for the following:

  • The loan amounts
  • Tenor (In months)
  • Rate Of interest
  • The part pre-payment amount that you wish to pay

After you enter these details, click “Done”. You will be able to see two options:

  • EMI saved: This table shows the reduction in your EMI and monthly savings in EMI post part pre-payment
  • Tenor saved: This table shows the reduction in your tenor post part pre-payment.
What are the benefits of prepayment in home loan?

Home loan prepayment comes with several benefits, such as reduced outstanding, reduced tenor, and smaller EMIs. In the long run, prepayments help you become debt-free earlier, which ultimately impacts your CIBIL Score positively.

Does prepayment reduce EMI?

When you prepay a part of your home loan, you have two options. You can either have your lender shorten the tenor, in which case you roughly pay the same amount as EMI, or you can continue with the same tenor, in which case your EMIs reduce.

Is there a prepayment penalty on home loans?

It depends on the type of home loan interest rate. For example, Individuals with a floating interest rate home loan pay no extra charges on prepayment or foreclosure. On the other hand, fixed interest rate home loans attract a nominal fee on prepayment or foreclosure.

What is the difference between a home loan EMI calculator and a prepayment calculator?

The home loan EMI calculator will help you calculate your EMIs by entering your loan amount, rate of interest, and tenure. While the prepayment calculator will help you calculate your new EMI after you do a part-prepayment.

What is the difference between home loan repayment and prepayment?

Home loan repayment and prepayment refer to the same thing - payment of the outstanding principal amount of a home loan. However, the key difference between the two is the timing of the payment.

Home loan repayment refers to the payment of the EMI (Equated Monthly Installment) on the due date every month. The EMI consists of two components - principal and interest. The principal component repays the outstanding loan amount, while the interest component represents the cost of borrowing the loan. Every month, the outstanding principal amount reduces, and the interest component decreases based on the remaining principal amount.

On the other hand, home loan prepayment refers to the payment of the outstanding loan amount before the scheduled due date. Prepayment can be done in two ways - partial or full. In partial prepayment, a specific amount of the outstanding loan is paid before the scheduled date, while in full prepayment, the entire outstanding loan amount is paid off before the due date.

Prepayment helps in reducing the interest and principal component of the EMI in the ensuing months. When a borrower makes a prepayment, the outstanding principal amount reduces, and the interest due on the remaining balance decreases, which leads to lower EMIs or a shorter loan tenure.

In summary, while repayment is the scheduled payment of the principal and interest every month until the end of the loan tenure, prepayment is the early payment of a part or the entire outstanding loan amount before the scheduled due date.

What are the benefits of a home loan repayment calculator?

A home loan repayment calculator offers numerous benefits for individuals navigating the complexities of a home loan. It provides accurate EMI calculations, helps in financial planning, allows easy comparison of loan options, calculates interest outlay, offers an amortisation schedule, and assists in early repayment planning. The tool is user-friendly, allows quick scenario analysis, saves time, and is accessible online, making it a valuable resource for borrowers seeking clarity and informed decision-making in their home loan journey.

Can I repay home loan early?

Yes, you can repay your home loan early, providing benefits such as interest savings and loan closure. Before proceeding, check for prepayment charges in your loan agreement and explore options like partial or full prepayment. Consider your financial goals, tax implications, and the current interest rate environment.

Is rеpaying thе loan еarly a good idеa?

Repaying the loan early can be advantageous as it reduces interest costs and accelerates debt freedom. However, consider potential prepayment penalties and weigh against other financial goals before deciding.

How many times can you use the home loan calculator?

The home loan calculator can typically be used multiple times, allowing you to evaluate various scenarios and make informed decisions about loan terms, payments, and affordability.

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