How much interest does prepaying a home loan save?

Prepaying a home loan early in the tenure saves the most interest because the outstanding principal is highest then. Example: a 50L loan at 8.5% for 20 years. After 3 years, a lump sum prepayment of 5L reduces outstanding tenure by approximately 2.5 years and saves 8-10L in total interest. The earlier you prepay, the greater the savings. Use this calculator to see the exact impact for your loan.

Is it better to reduce EMI or reduce tenure when prepaying?

Almost always reduce tenure, not EMI. When you reduce tenure, you pay off debt faster and save significantly more interest. When you reduce EMI, you free up monthly cash flow but the total interest savings are much lower. Example: a 30L loan at 9%, prepayment of 3L. Reducing tenure saves approximately 4.5L in interest. Reducing EMI saves approximately 1.5L in interest. Choose EMI reduction only if you genuinely need the monthly cash flow relief.

When is the best time to make a lump sum prepayment?

The best time to prepay is as early in the loan tenure as possible, because the outstanding principal is highest and interest savings are maximised. If you receive a bonus, tax refund, or windfall, using it for loan prepayment beats most low-risk investments when your loan rate is 8%+ (since guaranteed savings equal the loan rate). However, first ensure you have 3-6 months of emergency funds in liquid savings before using surplus income for prepayment.

How does partial prepayment affect the amortization schedule?

A partial prepayment reduces the outstanding principal immediately. In subsequent months, EMI stays the same (if you chose tenure reduction) but more of each EMI goes toward principal and less toward interest. The amortization schedule is effectively reset from the new outstanding balance. This means each future EMI builds equity faster. Most banks recalculate the schedule after prepayment and issue an updated statement within 1-2 billing cycles.

Loan Prepayment Calculator

Q: Is there a prepayment penalty on home loans?

Per RBI guidelines, banks and HFCs cannot charge prepayment penalties on home loans with floating interest rates. Fixed-rate home loans may carry a prepayment charge of 2-3% of the prepaid amount. Always check your loan sanction letter for the specific prepayment clause. Most modern home loans are on floating rates, so prepayment is typically free. For personal and auto loans, check with your lender - fixed-rate products may have foreclosure charges.

Calculate how much interest and time you save by making a lump sum loan prepayment.

⏩ What is Loan Prepayment?

Loan prepayment (also called part-payment or foreclosure) means paying an amount over and above your regular EMI to reduce your outstanding principal faster. This can happen as a lump sum payment - for example, using a year-end bonus or matured investment - or as an increased monthly EMI.

Because loan interest is calculated on the outstanding principal at any given point (reducing-balance method), reducing the principal faster dramatically cuts the total interest paid and shortens the loan tenure. The earlier in the loan life you prepay, the greater the savings - because interest forms a larger share of the EMI in the early years.

This calculator simulates a single lump sum prepayment at the current point in time and shows exactly how many months you save and how much interest is eliminated.

📐 How Prepayment Savings Are Calculated

Original Total Interest = (EMI × N) − P

After prepayment: new principal = P − prepayment

New N' = months until new principal reaches zero at same EMI

Interest Saved = Original Total Interest − New Total Interest

P = Outstanding principal at time of prepayment

N = Original remaining months

EMI = Existing monthly payment (kept constant after prepayment)

The key assumption: your EMI stays the same after the prepayment. The prepayment reduces the outstanding principal, so with the same EMI you now finish paying off the loan sooner. Alternatively, you could reduce your EMI - but reducing tenure saves more total interest.

📖 How to Use This Calculator

Steps

Enter current outstanding principal - check your latest loan statement for the exact balance.

Enter your interest rate - find this on your loan agreement or bank statement.

Enter remaining tenure - how many years are left until the loan ends.

Enter the prepayment amount you plan to make, then click Calculate.

💡 Example Calculations

Example 1 - Home Loan Prepayment

Outstanding: ₹30L | Rate: 8.5% | Remaining: 15 years | Prepayment: ₹5L

Original EMI on ₹30L @ 8.5% for 15 yr = ₹29,536 | Original total interest ≈ ₹23.2L

After ₹5L prepayment, new principal = ₹25L. Months needed at same EMI ≈ 140 months (11.7 yr)

Interest Saved ≈ ₹4.2L | Months Saved ≈ 40 months (3.3 years)

Try this example →

❓ Frequently Asked Questions

Should I reduce EMI or tenure after a prepayment?+

Always choose tenure reduction over EMI reduction. If you reduce your EMI, the total interest you pay over the remaining life is higher than if you keep the EMI constant and pay off the loan sooner. Tenure reduction means you stop paying interest earlier. The exception is if cash flow is severely constrained - in that case, reducing the EMI frees up monthly cash, which is sometimes the priority.

Should I prepay my loan or invest the surplus?+

Compare your loan interest rate against your expected post-tax investment return. If your home loan is at 8.5% and you can invest in a balanced fund returning 11% post-tax, investing wins. If your personal loan is at 15%, prepaying saves more. Rule of thumb: always prepay loans above 12-14% and invest if loan rate is below 8%.

Does prepaying reduce EMI or tenure?+

Most lenders default to reducing tenure (keeping EMI constant), which saves more total interest. Some allow choosing EMI reduction instead - useful if your current EMI is straining monthly cash flow. Tenure reduction is almost always the better financial decision for total savings.

How does part-prepayment work vs full foreclosure?+

Part-prepayment reduces the outstanding principal without closing the loan. Foreclosure fully repays and closes the loan. Part-prepayment is useful when you have a surplus but not enough to close the loan. Both reduce total interest, but foreclosure ends your obligation immediately. Some lenders charge 2-4% foreclosure charges on fixed-rate loans.

Are there prepayment penalties on home loans?+

RBI regulations prohibit banks from charging prepayment penalties on floating-rate home loans to individual borrowers. Fixed-rate home loans may have a prepayment penalty of 1–3% of the prepaid amount. Personal loans and car loans may also have prepayment charges - check your loan agreement before prepaying. For home loans from banks (not housing finance companies), prepayment is typically free after the loan is 12 months old.

When is the best time to prepay a loan?+

The earlier in the loan tenure, the better. In the first few years of a reducing-balance loan, the interest component of each EMI is very high. Prepaying then reduces the principal that attracts this high interest. In the later years, most of your EMI is already principal repayment, so prepayment saves less. As a rule of thumb, prepayments made in the first 40% of the tenure provide the highest savings.

Should I prepay a loan or invest the money?+

Compare the loan interest rate vs. expected investment return. If your home loan rate is 8.5% and you expect a consistent 12%+ post-tax return from equity mutual funds, investing may be more beneficial. But if your loan rate is 14–18% (personal loan), it is almost always better to prepay - very few investments reliably beat that rate post-tax. Also consider tax benefits: home loan principal and interest have tax deductions under 80C and 24(b) that effectively reduce the loan's cost.

How much interest does prepaying a ₹50L home loan save?+

On a ₹50L home loan at 8.5% for 20 years, a lump sum prepayment of ₹5L made after 3 years reduces the outstanding tenure by approximately 2.5 years and saves around ₹8–10L in total interest. The earlier in the tenure you prepay, the greater the savings - because the outstanding principal (and thus future interest) is highest in the early years. Use this calculator to enter your exact loan details and see the precise interest saved for any prepayment amount.

Is there a prepayment penalty on home loans in India?+

Per RBI guidelines, banks and housing finance companies (HFCs) cannot charge prepayment penalties on floating-rate home loans. Since most home loans in India are on floating rates (linked to REPO rate), prepayment is effectively free for most borrowers. Fixed-rate home loans may carry a prepayment charge of 2–3% of the prepaid amount. Always check your loan sanction letter for the specific prepayment clause. For personal and auto loans, check with your lender - fixed-rate products may have foreclosure charges of 1–5%.

Is it better to prepay a loan or invest the extra money?+

Compare the loan interest rate with after-tax investment returns. If your loan is at 9% and you expect 12% returns from equity, investing wins mathematically. However, prepayment offers a guaranteed, risk-free "return" equal to the loan rate. For loans above 9-10% (personal loans, credit cards), prepayment almost always wins.

What is the difference between prepayment with reduced EMI vs reduced tenure?+

With reduced tenure, your EMI stays the same but the loan closes earlier - saving the most interest. With reduced EMI, the tenure stays the same but monthly cash flow improves. Reduced tenure always saves more total interest. Most financial advisors recommend reduced tenure for maximum savings.