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Tata Capital > Blog > Loan for Home > A Guide to Home Loan Prepayment Calculator

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A Guide to Home Loan Prepayment Calculator

A Guide to Home Loan Prepayment Calculator

After a few years into your housing loan tenure, there might come a time when you have a sudden increase in your finances and decide to prepay the loan. No doubt, loan prepayment is a viable option to take the EMI burden off your shoulder. But should you take the leap? You can use a home loan prepayment calculator to decide.

It is an excellent financial tool that will help you find out how much money you will save with prepayment and how it will affect your loan EMI.

But before we understand how a loan prepayment calculator works, let’s take a closer look at prepayment of home loan.

What is home loan prepayment?

To prepay a loan means to make a lump sum payment towards the loan before the end of the tenure. And is payable over and above the EMI payments.

Because longer loan tenure leads to an increase in the total interest outgo, part prepayment of home loan is an effective way to reduce your interest payments and thus, your debt burden. Loan prepayment usually entails either a reduction in the loan tenure or a decrease in your EMI payment. Either way, it helps you save significantly on your loan payments.

However, before opting for loan prepayment, you must know about the prepayment charges you’ll need to pay to check if it is a viable option. This is where a home loan EMI prepayment calculator comes handy.

Also, read – Detailed Guide on How Home Loan Repayment Works

Types of Home Loan Prepayment: Part vs Full

There can be two types of home loan prepayment based on the amount paid and the resulting status of the home loan account. These home loan prepayment options are:

Part prepayment home loan: In this, you pay a lump sum amount toward the outstanding principal of your home loan. With this payment, you can reduce the overall loan amount, which in turn, reduces the total interest you’ll have to pay throughout the tenure.

Full prepayment home loan: Here, you repay the entire outstanding loan amount in one single payment before your loan tenure even ends. This closes the loan account completely in a single instance. However, lenders may impose a prepayment penalty in this case. It’s better to check with your lender before a full prepayment.

Also, read – Home loan preclosure charges: Complete guide

How does a loan prepayment calculator work?

A housing loan pre-payment calculator is an online tool that lets you determine the viability of opting for the prepayment option. Most online home loan foreclosure calculators will help you determine four crucial factors of the loan when you go for prepayment of home loan –

  • The percentage/amount of EMI saved
  • Due EMI amount
  • Revised EMI amount
  • Revised loan tenure

In this way, you can determine how much you can save and your revised EMI amount.

While manual calculations can be complex and time-consuming, the online home loan EMI prepayment calculator is fairly easy to use. All you need to do is enter the following loan details –

  • Outstanding loan amount
  • Loan tenure
  • Rate of interest
  • Prepayment amount you wish to pay

Once you input the details in the home loan foreclosure calculator, you can find out your overall savings from choosing the loan prepayment option.

Just like how a home loan prepayment calculator shows your potential savings, a home loan down payment calculator helps you figure out how much you should put in upfront and how that choice determines your EMI and overall loan amount.

Also, read – Demystifying Home Loan Foreclosure Charges: A Comprehensive Guide

Step-by-Step Guide to Using a Home Loan Prepayment Calculator

Not sure how to use a prepayment calculator?

Follow this step-by-step home loan prepayment calculator guide to calculate loan prepayment savings, run scenarios, compare savings, and pick the best prepayment plan.

Step 1: Input your loan details

Open a home loan foreclosure calculator and enter the current outstanding principal, remaining term, and the active interest.

Step 2: Fill in your prepayment details

Input the prepayment amount you have decided to make in the home loan EMI prepayment calculator. Also, clarify whether it’s a one-off lump sum or recurring periodic payments, and click “calculate” to see loan prepayment savings.

Step 3: Assess different scenarios

The result will be displayed on the screen. You must also use this EMI prepayment calculator to compare different amounts and frequencies to see which option delivers the largest savings for the least financial burden.

Step 4: Weigh the results

Factor in prepayment charges, your emergency fund needs, and long-term goals. And pick the plan that balances savings with cash flow, then inform the lender of a change to the loan agreement.

Also, read – Top Things to keep in mind before prepaying your Home Loan

Impact of Prepayment on EMI and Loan Tenure

When you make a prepayment of home loan along with your regular EMI, the outstanding loan amount of your loan decreases immediately. Since the interest is calculated on this reduced loan amount, you also save on the total interest you would have otherwise paid over the loan tenure.

The impact of prepayment on EMI and loan tenure can be understood in two ways:

1. Reduce loan tenure with prepayment

The first home loan prepayment impact is the reduction of the tenure. This is often the default or most common option. The lender keeps your monthly EMI the same, but because less of that payment is going toward interest, and more toward the reduced principal, your loan is paid off faster. 

This means you are paying the same monthly payment but finish the loan several months or years earlier than the original schedule, maximising interest savings.

2. Reduce the EMI with prepayment

Another scenario involves prepayment effect on EMI. This is when you need immediate relief in your monthly repayments. Here, you can request that the lender recalculates your EMI based on the new, lower principal amount while keeping the original loan end date. 

This way, your total loan tenure remains the same, but your monthly EMI is lowered significantly. You can explore Tata Capital’s EMI calculator as an EMI reduction calculator to run different scenarios reducing your EMI or tenure.

Benefits of loan prepayment calculator

A home loan foreclosure calculator can help you decide the profitability of making a prepayment against your loan and manage your finances accordingly. It helps you reduce the outstanding loan amount and make the EMIs more affordable. This also results in reduced home loan interest rate outgo, which brings down the loan cost further.

Tax Implications of Home Loan Prepayment (Sections 80C and 24)

While there are significant benefits of home loan prepayment, the tax benefits you get when you take a home loan are significantly reduced.

Here’s what you need to know about the tax impact of loan prepayment:

Section 80C home loan prepayment impact: This section of the Income Tax Act allows you the benefit of tax deductions up to ₹1.5 lakh every year on principal repayment, but only after construction is complete. Moreover, any principal amount paid, either regular EMI or prepayment, qualifies within this limit.

Section 24 interest deduction impact: This section permits claims up to ₹2 lakh annually on interest for self-occupied properties. For let-out properties, the entire interest amount can be claimed without limits.

Because of home loan prepayment, tax benefits can be negatively impacted. This is because prepayment actually reduces your eligible deductions for both principal and interest components. Full prepayment eliminates these benefits entirely, while partial prepayment proportionally reduces your eligible deductions for both principal and interest components in the future.

Wrapping up

Consider prepayment only if you are saving a significant amount against your loan. But if you’re looking for a home loan balance transfer to make EMI affordable, then get in touch with us at Tata Capital. With relaxed home loan eligibility, attractive interest rates, and a simple online application process, we offer the best services on your housing loan. 

Estimate your expenses using our online home loan EMI calculator and get started today!

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FAQs

What is prepayment of home loan?

Prepayment of home loan means paying off a significant amount of your loan before the end of the scheduled tenure. This could be done fully under full-prepayment or just partially under part-prepayment.

How much can I save by prepaying my home loan?

How much you save by prepaying your home loan depends on several factors, such as the loan amount, interest rate, the amount you prepay, and the timing of the prepayment.

Are there any prepayment charges?

Whether there will be prepayment charges depends on the type of loan and your lender's policies. For instance, with floating-rate home loans, there are usually no charges. But for fixed-rate home loans, lenders typically charge a small percentage of the prepayment amount.

Does prepayment affect my tax benefits?

Yes, prepayment reduces your tax benefits. When you prepay, you lower the outstanding principal and future interest payments, which means smaller deductions under Section 80C and Section 24(b) of the IT Act. Full prepayment eliminates these tax benefits entirely, while partial prepayment reduces them.

How to use the home loan prepayment calculator?

To use a home loan foreclosure calculator, you must first enter your outstanding principal amount, remaining tenure, and current interest rate.

Next, input the prepayment amount you plan to make, and choose whether to reduce your EMI or keep EMI the same and decrease loan tenure. The calculator will display the revised EMI, interest savings, and new loan tenure. Using this, you can compare different prepayment scenarios for a better repayment strategy.

If you want to estimate your initial contribution accurately, you can use a home loan down payment calculator.

Can I make multiple part prepayments?

Yes, you can make multiple part prepayments, and the number of times you can do so depends on your loan type and lender. It's better to consult your lender or go through the loan agreement thoroughly before you begin any prepayments.

Should I reduce EMI or tenure while prepaying?

The choice between reducing EMI or tenure depends on your financial goals and needs. You should reduce tenure if you want to repay your loan faster and pay less interest overall. In contrast, you should reduce EMI if you need lower monthly payments, which makes it easier to manage your monthly budget and overall cash flow. You can use a home loan EMI prepayment calculator to assess these two scenarios and decide which suits you the best.

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