How to work out your prepayment savings
- Enter your loan amount, yearly interest rate and tenure. For a loan you've already been paying, enter the outstanding balance and the years left.
- Add an extra amount to pay every month, a one-time lump sum, or both. Leave either at 0 to skip it.
- Choose the month the lump sum is paid: month 12 is the end of the first year.
- Read the interest saved and how much sooner the loan ends, then compare the balances year by year.
How prepayment is calculated
The calculator first works out your EMI with the standard formula,EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1), where P is the loan amount, r the monthly rate (yearly rate ÷ 12 ÷ 100) and n the number of months. It then runs the loan month by month:
- Interest for the month = balance × r.
- Everything you pay beyond that interest (the EMI, any extra payment, and the lump sum in its month) reduces the balance.
- The EMI stays the same, so the loan simply ends early, and the last payment is whatever is left.
Interest saved is the total interest on the original schedule minus the total interest with your prepayments. This is the "reduce tenure" option; if your lender lowers the EMI instead, you'll save less.
Worked example
A ₹50 lakh home loan at 8.5% for 20 years has an EMI of ₹43,391.16 and costs ₹54,13,879 in interest. Paying ₹5,000 extra every month clears it in 15 years 7 months instead of 20 years and saves₹13,89,250 of interest. Add a ₹2 lakh lump sum at the end of the first year as well, and the loan ends 5 years 7 months early, saving ₹18,44,718.
Why earlier prepayments save more
The same ₹2 lakh lump sum on that ₹50 lakh, 8.5%, 20-year loan, paid at different points:
| Lump sum paid | Interest saved | Loan ends sooner by |
|---|---|---|
| End of year 1 | ₹7,29,425 | 1 year 9 months |
| End of year 5 | ₹4,76,395 | 1 year 3 months |
| End of year 10 | ₹2,51,172 | 10 months |
| End of year 15 | ₹99,128 | 6 months |
Early in a loan most of each EMI is interest, so cutting the balance then removes years of interest on it. To see the monthly EMI and full schedule of a loan without prepayments, use theEMI calculator.
Things to check with your lender
These figures are estimates. Ask whether a part-payment reduces your tenure or your EMI, whether there's a minimum prepayment amount, and whether any fee applies. Floating-rate home loans to individuals in India usually carry no prepayment penalty, but fixed-rate and business loans can.
Common uses
- Using an annual bonus. Enter your bonus as a one-time lump sum in the month you'd pay it to see how much interest it saves and how much sooner the loan closes.
- Paying a little extra every month. See what adding a fixed amount to every EMI does over the life of a home loan: often years off the tenure for a modest monthly sum.
- Deciding when to prepay. Move the lump sum to a later month to see how the saving shrinks, and decide whether to prepay now or wait.