Loan Prepayment Calculator – Save Interest Payout
See how much interest you can save by prepaying a lump sum or adding extra monthly principal payments to your outstanding loans.
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The Financial Strategy behind Loan Prepayment
Prepaying a loan means paying an extra lump sum amount towards your principal outstanding. Since the interest is calculated monthly on the reducing principal balance, any reduction in principal instantly curtails the interest compounding cycle, yielding massive lifetime savings.
Even making a small prepayment of one extra EMI every year or increasing your monthly EMI by 5% annually can reduce your 20-year home loan duration by up to 4.5 years, shielding you from heavy interest overheads.
Frequently Asked Questions (FAQ)
1. Are there prepayment penalties on home loans?
Under RBI guidelines, banks cannot charge any foreclosure or prepayment penalties on individual floating rate home loans.
2. Should I choose tenure reduction or EMI reduction during prepayments?
Choosing tenure reduction yields significantly higher overall interest savings because it shortens the compound interest accumulation period.