Home Loan Calculations: How you can save Rs 52 lakh, and 7 years, 10 months on Rs 75 lakh, 30-year loan
Prepayment can help you save interest amount on your loan. Let’s understand how prepayment can help you save over Rs 52 lakh on Rs 75 lakh loan. See calculations.
Prepaying your loan can reduce the amount of interest and tenure on the entire loan. It can help you maintain a good credit score by lowering your credit utilization ratio. But, prepaying your home loan may have some tax implications. For example, you may lose some of the tax benefits you receive under Section 80C and Section 24b of the Income Tax Act. If you are planning for a home loan, getting an insight may be helpful. Thus, let’s find out how prepayment can help you save over Rs 52 lakh on Rs 75 lakh loan.
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(Disclaimer: Our calculations are projections and not investment advice. Do your due diligence or consult an expert for financial planning)
What is home loan prepayment?
Home loan prepayment is a method of paying off a home loan in part or in full before the end of the loan's term. Prepayment can help you save money on interest, reduce your loan term, and improve your credit score.
Benefits of home loan prepayment
Improved credit scores
Reduces interest burden
Debt relief
Home loan conditions
We are taking the example of a Rs 75 lakh home loan for 30 years at the rate of 9.50 per cent interest rate.
What will be your EMI on Rs 75 lakh loan for 30 years?
The estimated EMI will be Rs 63,064.
What will be your total interest on Rs 75 lakh loan in 30 years?
The estimated total interest in 30 years will be Rs 1,52,03,064 on a Rs 70 lakh loan.
What will be your total repayment amount on Rs 70 lakh loan in 30 years?
The total estimated repayment amount will be Rs 2,27,03,064.
How prepayment can be done?
The prepayment amount will be 10 per cent of the principal amount. It means for a 75 lakh loan, the prepayment will be Rs 7,50,000. But we won’t prepay it in one go. We will prepay it in 3 equal installments of Rs 2,50,000 each. For a loan started in January 2025, the prepayment of the loan will start in January 2028 (after the completion of 3 years of the lock-in period). The next prepayment will be made in January 2029, and the third in January 2030.
How will it impact home loans?
After all 3 prepayments are made, you will have your revised home loan amount.
What is the next step after prepayment?
After making the prepayments one has to decide whether to opt for a reduced loan tenure or a reduced EMI.
What if you choose to reduce your EMI?
If you choose to reduce your EMI after prepayment, your revised estimated EMI will be Rs 56,570. It means you will save an estimated Rs 6,494 every month for the rest of your loan tenure.
What if you choose same EMI amount?
If you opt for the same EMI as it was before the prepayment (Rs 63,064), you will save the interest amount as well and your loan tenure will be also shortened. Your revised estimated time duration to repay the loan will be 22 years and 2 months, which is 7 years and 10 months short of the scheduled time.
What will be your revised interest amount?
After choosing the option of the same EMI, you will save an estimated Rs 52,04,888.