How home loan prepayment of Rs 2.50 lakh can save your Rs 12 lakh in interest on Rs 50 lakh loan

Home Loan Prepayment: If you take Rs 50 lakh home loan for 20 years at 10 per cent interest rate, your equated monthly instalment (EMI) will be Rs 48,251, the total interest will be Rs 65,80,260, and the repayment amount will be Rs 1,15,80,260.

ZeeBiz WebTeam | Aug 08, 2024, 01:42 PM IST

Home Loan Prepayment: When you take a home loan, you repay the principal amount and the interest. In the initial stage of your repayment, the interest payment is much higher than your principal amount. But if you make a prepayment, it adds to your principal amount, and the interest may reduce significantly. Specially if you make a prepayment in the initial stage of your home loan, not only will your interest reduce drastically, but you can also repay your loan much earlier than the original repayment schedule. In this write-up, we will tell you how after a 5 per cent prepayment on your Rs 50 lakh, 20-year home loan, you can cut down your interest money by over Rs 12 lakh and the loan duration by 2.5 years.

Photos: Pixabay/Unsplash

(Disclaimer: These calculations are projections. If you want to make a prepayment of your home loan, do your due diligence or consult an expert).

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Home loan conditions

Home loan conditions

Let's put down the home loan conditions first. We will calculate a home loan of Rs 50 lakh for 20 years. We will take the interest rate of 10 per cent annually. 

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What will be your EMI?

What will be your EMI?

With these home loan conditions, your equated monthly instalment (EMI) will be Rs 48,251, the total interest will be Rs 65,80,260, and the repayment amount will be Rs 1,15,80,260.

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How much prepayment you need to make and when?

How much prepayment you need to make and when?

You need to make just one prepayment of Rs 2.50 lakh after paying off 12 EMIs in 1 year.

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How will it impact your home loan?

How will it impact your home loan?

Before prepayment, the interest you were supposed to pay was Rs 65,80,260. After the prepayment, your interest will be reduced to Rs 53,76,091.

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How much money will you save?

How much money will you save?

With this, the estimated money you will save will be Rs 12,04,168.

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Will loan duration also reduce?

Will loan duration also reduce?

Since you have to pay less interest, your loan duration will also reduce from 20 years to 17 years and 6 months.

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