If you decide to make a full or partial payment against your Home Loan, which is in addition to your regular payment schedule, it can be referred to as a prepayment of the Home Loan. In case your income increases over the tenure of the Loan, you can also speak with your lender to increase your monthly EMI. In both cases, your Loan gets repaid faster, and you can save on the overall interest payout.

This is possible because prepaying against the Housing Loan reduces your interest component. The amount paid towards part prepayment is deducted from the principal amount outstanding. The Home Loan prepayment calculator helps you understand the effect of making part prepayments on your Home Loan.

The partial prepayment option is extremely popular among individuals who have borrowed a Home Loan at a floating interest rate for non-business purposes.

Paying extra income towards the Loan

There are no extra charges for making part-prepayments towards Home Loans in such cases. Thus, if you receive any extra income, such as bonus payments from work, dividends from shares or investments, or unexpected extra income (for self-employed individuals and business owners) during festive seasons, you can use a portion of this income to make a partial prepayment on your Home Loan.

How does the calculator work?

Lenders offer a free Housing Loan prepayment calculator, which can provide you with instant results. Existing Home Loan customers can use this automated tool to determine the amount of savings that they can make by opting to make a part-prepayment on their Home Loan. The process is simple. Enter your original Loan amount, tenure, interest rate, number of instalments already paid, prepayment amount, and revised EMI amount, and click on Calculate.

The Home Loan prepayment calculator shows the interest savings from making a prepayment on your Home Loan. However, this calculator is not applicable in the case of pre-EMIs. It does not account for any penalty charges, bounce fees, late payment fees, etc. It does not consider the effect of a moratorium or a Loan restructuring facility, if availed.

You cannot use it to calculate the effect of paying a higher EMI amount. Additional charges (such as Insurance) that may be applicable are not considered.

Benefits of Home Loan prepayment

Prepaying a Home Loan can have several benefits. It lowers the outstanding principal and reduces the interest burden. You can close the Loan before the original tenure, saving on interest costs. Closing a Loan successfully can improve your credit score, making future credit approvals easier. Being debt-free sooner provides financial freedom and flexibility to pursue other goals.

While there are no specific tax benefits for prepayment, it reduces the interest component, indirectly affecting tax savings. Eliminating a significant debt can provide peace of mind and reduce financial stress. You can get an estimate of savings by using the Home Loan prepayment calculator.

Conclusion

Prepayment reduces interest costs and shortens the Loan tenure, allowing for faster financial freedom. However, it may limit liquidity and strain finances if not planned carefully. Some lenders may impose penalties on fixed-rate Home Loans. Review the terms before making a prepayment.