Home Loan Prepayment Calculator — See How Much You Save — India 2026
Calculate how much interest you save by making prepayments on your home loan. Compare tenure reduction vs EMI reduction options with our free tool.
Making prepayments on your home loan is one of the smartest financial moves you can make. Even a single lump sum prepayment of Rs 1-2 lakh per year can save you Rs 10-20 lakh in total interest and reduce your loan tenure by years. Banks in India cannot charge prepayment penalties on floating rate home loans as per RBI guidelines. Use our calculator to see the dramatic impact of prepayments on your total interest savings.
How much do I save by prepaying Rs 2 lakh yearly?
On a Rs 50 lakh home loan at 8.5% for 20 years making an annual prepayment of Rs 2 lakh can reduce your tenure by approximately 6-7 years and save you Rs 15-20 lakh in total interest. The earlier you start prepaying the more you save because interest component is highest in the early years of the loan.
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Loan Prepayment Calculator
How This Calculator Works
This calculator uses the standard reducing balance method to compute your monthly payments. The formula takes your loan principal, annual interest rate, and tenure to calculate the exact Equated Monthly Installment (EMI) or payment amount. Each monthly payment consists of two components — principal repayment and interest charges. In the early months, a larger portion goes toward interest, but as your outstanding balance decreases, more of each payment reduces the principal. This is why making extra prepayments in the early years of your loan saves significantly more interest than prepaying later.
Tips to Get the Best Loan Deal
Always compare the Annual Percentage Rate (APR) rather than just the advertised interest rate, as APR includes processing fees, insurance charges, and other costs. Negotiate your processing fee — most banks will reduce or waive it if you ask. Choose the shortest tenure your budget allows since longer tenures dramatically increase total interest paid. Check prepayment terms before signing — RBI mandates zero prepayment penalty on floating rate home loans in India. Finally, maintain a credit score above 750 to qualify for the best rates from any lender.
Key Information
| Parameter | Details |
|---|---|
| Prepayment Penalty (Floating) | NIL (RBI mandate) |
| Prepayment Penalty (Fixed) | 2% - 4% of prepaid amount |
| Impact of Rs 1L Prepayment | Saves Rs 2-4L in total interest (20yr loan) |
| Best Time to Prepay | First 5-7 years (maximum interest savings) |
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Use Calculator NowFrequently Asked Questions
How much do I save by prepaying Rs 2 lakh yearly?
On a Rs 50 lakh home loan at 8.5% for 20 years making an annual prepayment of Rs 2 lakh can reduce your tenure by approximately 6-7 years and save you Rs 15-20 lakh in total interest. The earlier you start prepaying the more you save because interest component is highest in the early years of the loan.
Should I prepay home loan or invest in mutual funds?
If your home loan interest rate is 8.5% and you can earn 12-15% in equity mutual funds mathematically investing gives better returns. However prepaying the loan gives guaranteed savings equal to the interest rate while equity returns are uncertain. A balanced approach works best: prepay enough to keep EMI comfortable while investing the surplus in SIP for wealth creation.
Reduce tenure or reduce EMI which is better?
Reducing tenure saves significantly more interest than reducing EMI. On a Rs 40 lakh loan at 8.5% a Rs 5 lakh prepayment with tenure reduction saves approximately Rs 8.5 lakh in interest while the same prepayment with EMI reduction saves only Rs 5.2 lakh. Always choose tenure reduction unless you need the cash flow relief of a lower EMI.
How is EMI calculated?
EMI is calculated using the formula: EMI = P × r × (1+r)^n / ((1+r)^n - 1), where P is the principal loan amount, r is the monthly interest rate (annual rate divided by 1200), and n is the tenure in months. This gives you the fixed monthly payment that covers both principal repayment and interest.
Should I choose a longer or shorter loan tenure?
A shorter tenure means higher EMI but significantly less total interest paid. For example, on a Rs 50 lakh loan at 8.5%, choosing 15 years over 20 years saves approximately Rs 12 lakh in interest but increases your EMI by about Rs 14,000. Choose the shortest tenure your budget allows.
Can I prepay my loan to reduce interest?
Yes, making prepayments is one of the smartest financial moves. RBI mandates zero prepayment penalty on floating rate home loans. Even small annual prepayments of Rs 1-2 lakh can save Rs 10-20 lakh in total interest and reduce your tenure by years.
What CIBIL score do I need for a loan?
Most banks require a minimum CIBIL score of 700 for loan approval. A score above 750 helps secure better interest rates. Scores between 650-700 may still get approved but at 0.5-1% higher rates. Below 650, approval becomes difficult with mainstream banks.
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Last updated: March 2026