What is a home loan prepayment calculator?
Prepayment is one of the few ways to reduce or consolidate your debt by repaying the loan in part (or full) before the completion of the full tenure. It can not only lower your debt but also save you from paying excessive interest.
Using a home loan prepayment calculator helps you determine the savings from prepayment. This easy-to-use calculator requires you to input fields such as:
- Outstanding loan amount: This is the remaining balance on your home loan that you need to repay.
- Loan tenure (in months or years): This refers to the total period over which your loan is scheduled to be repaid.
- Rate of interest: Enter the interest rate on your home loan.
- Prepayment amount: The amount you plan to prepay towards your home loan.
Once you input these details, the calculator will provide you with information such as:
- Revised EMI: Your new monthly payment amount after making the prepayment.
- New loan tenure: The shortened tenure of your loan.
- Total savings on interest: The total amount of interest you save by making the prepayment.
Based on the values you enter, the calculator will display the new EMI to the right, reflecting the impact of your prepayment.
What is Part Payment in Home Loan?
Part payment in a home loan refers to making an additional payment towards the principal amount apart from regular EMIs. This reduces the outstanding loan balance, lowers interest costs, and helps in faster loan repayment. It is a useful option for borrowers looking to reduce their debt burden efficiently.
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.
Why Home Loan Prepayment is Important for Buyers
Paying off your home loan ahead of schedule through prepayments offers several key benefits:
- Interest savings:
Reduces the total interest paid over the loan tenure, resulting in significant savings. - Faster debt clearance:
Accelerates the journey to full homeownership, freeing you from debt sooner. - Financial freedom:
Allows for increased financial flexibility by eliminating a major financial obligation. - Improved credit score:
Demonstrates financial discipline, positively impacting your credit score. - Potential interest rate savings:
May open opportunities to negotiate lower home loan interest rates or refinance the loan. - Reduced stress:
Minimises long-term financial stress and uncertainty associated with debt. - Investment opportunities:
Creates room for investing in other avenues once the home loan burden is lifted. - Home equity build-up:
Accelerates the accumulation of home equity, increasing overall property ownership.
How does a Home Loan Prepayment Calculator work?
Here’s a step-by-step guide on how a home loan prepayment calculator works:
- Step 1: Enter outstanding loan amount: Input the remaining balance of your home loan. This is the amount you still owe to the lender.
- Step 2: Enter loan tenure: Provide the remaining tenure of your loan in months or years. This is the period left for your loan repayment.
- Step 3: Enter rate of interest: Input the current interest rate applicable to your home loan. This rate affects your EMI calculation.
- Step 4: Enter part-prepayment amount: Specify the amount you plan to prepay. This is the extra payment you intend to make towards your loan principal.
- Step 5: Calculate: Click on the ‘Calculate’ button. The calculator will process the information and display your new EMI amount.
- Step 6: Review results: The calculator will show your revised EMI, total interest saved, and the new loan tenure if applicable.
Using this tool helps you understand the financial impact of making a part-prepayment on your home loan, allowing you to plan your finances better.
How to Calculate Home Loan Repayments with help of a Formula?`
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
Eligibility for Home Loan Prepayment
Home loan prepayment eligibility depends on multiple factors set by lenders. Borrowers must check their loan agreement to understand prepayment terms. Typically, salaried and self-employed individuals with active home loans can prepay, subject to lender-specific conditions. Some lenders may impose a lock-in period before allowing prepayment, while others may charge prepayment penalties, especially for fixed-rate loans. Banks and NBFCs may also have minimum prepayment amounts. Using a Home Loan Prepayment Calculator helps assess the financial benefits before proceeding.
What are Home Loan Prepayment Charges?
When considering prepaying your home loan, it's crucial to understand the associated home loan charges. Some lenders impose prepayment penalties, especially on fixed-rate home loans, which can impact the overall savings from prepayment. These charges vary depending on the lender and loan type, so it's essential to review the terms carefully. If you're planning to prepay, check with your lender about these charges and how they apply to your loan.
Individual borrowers opting for a floating interest rate with Bajaj Finance can foreclose their entire home loan or make a partial prepayment without incurring any extra charges.
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.
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:
- Age: Assess your age and how many years you have left until retirement. If you're younger, prepaying early can help reduce long-term debt.
- Future cash requirements: Consider any upcoming expenses like education or medical costs to ensure you have sufficient liquidity even after prepayment.
- Tax savings: Evaluate how prepayment affects your tax deductions on home loan interest and principal repayments under Sections 24(b) and 80C of the Income Tax Act.
- Savings from prepayment: Calculate how much interest you’ll save by prepaying a portion of your loan. The more you prepay, the higher the savings.
- Investment opportunities: Compare the potential returns from investments against the savings from prepayment. If investments yield higher returns, consider allocating funds there.
- Home loan tenure: Shortening the tenure can help you become debt-free faster, while reducing EMI can provide greater monthly savings. Choose based on your financial goals.
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.
Bajaj Finserv app for all your financial needs and goals
Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.
You can use the Bajaj Finserv App to:
- Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
- Invest in fixed deposits and mutual funds on the app.
- Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
- Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
- Apply for Insta EMI Card and get a pre-qualified limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
- Shop from over 100+ brand partners that offer a diverse range of products and services.
- Use specialised tools like EMI calculators, SIP Calculators
- Check your credit score, download loan statements and even get quick customer support—all on the app.
Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.
Frequently asked questions
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.
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.
The Home Loan Part-Prepayment Calculator is a tool that shows the positive impact of early repayment of your loan.
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.
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.
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.
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.
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.
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.
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.
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. You can learn more on home loan FAQs on our website.
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.
