Home Loan Calculator: How 10% prepayment of Rs 85 lakh, 25-year loan can save Rs 40.23 lakh and 65 months; see calculations
Home Loan Prepayment: On a Rs 85 lakh home loan for 25 years and at 9.5 per cent interest rate, the estimated equated monthly instalment (EMI) will be Rs 74,264, the estimated interest will be Rs 1,37,79,265, and the estimated repayment amount will be Rs 2,22,79,265.
Home Loan Prepayment Calculator: The price of real estate is expensive. So, high-value loans are becoming the norm. Since the tenure is such and loans are also high amounts, interest is quite higher than the principal amount. It becomes burdensome for the borrower. Some of the tactics to reduce the interest amount and repay the loan earlier than the stipulated tenure are higher down payment, prepayment, and additional EMI. They can help one decrease the loan amount, tenure, or both.
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How prepayment works
When a borrower starts their EMI, they most likely adjust their EMI to their monthly income. It can be 35 to 40 per cent of the monthly pay. But as time passes, income most likely increases, and this brings an opportunity to ease the burden of the loan.
Most banks have a 3-year lock-in period for any prepayment. But after that, one can make a prepayment.
How prepayment reduces loan amount
Any prepayment that a borrower makes is added to the loan's principal amount. Since the principal amount reduces, the interest on it also trimmed.
How prepayment impacts
The bank gives two choices, either the borrower can choose to decrease their EMI amount and keep the loan tenure the same. In this option, their interest amount will decrease. Plus, they can continue taking tax benefits of up to Rs 1.50 lakh on the principal amount under Section 80C of the Income Tax Act, 1961, and Rs 2 lakh on interest under Section 24 of the same.
How prepayment impacts
In the second option, their EMI will remain the same, but the interest amount will reduce considerably, and the loan tenure will also be shortened.
Shorten EMI vs shorten tenure: How to decide
The best is to calculate both scenarios, keeping the tax benefits in mind, and assessing your own financial goals.
Home loan calculation
For our home calculation, we will take the example of a Rs 85 lakh home loan for 25 years at a 9.5 per cent interest rate.
What will be EMI and interest?
The estimated EMI will be Rs 74,264, the estimated interest in 25 years will be Rs 1,37,79,265, and the estimated repayment will be Rs 2,22,79,265.
What will be prepayment conditions?
The total amount of the prepayment will be Rs 8,50,000 (10 per cent of the principal). It will be made in 3 instalments of equal amount (Rs 2,83,333). The prepayment will be made in the 3rd, 4th, and 5th years of the loan tenure.
What will be prepayment conditions?
E.g., if the loan started in November 2024, the first prepayment of Rs 2,83,333 will be in November 2027, the second of the same amount will be in December 2028, and the third of the same amount will be in January 2029.
How much money will it save in interest?
The estimated amount saved in interest will be Rs 40,22,753.
How many months will be saved?
The estimated months saved thus will be 65 months. It means a 300-month (25-year) loan will be repaid in 235 months.
What if the borrowers opt for lower EMI and same duration?
In that case, the estimated EMI will be Rs 66,493, Rs 7,771 less than the earlier EMI of Rs 74,264.
However, the interest saved in that case will be Rs 11,31,301.