Home Loan Calculator: How 10% prepayment of Rs 85 lakh, 25-year loan can save Rs 40.23 lakh and 65 months; see calculations

When a borrower starts their EMI, they most likely adjust their EMI to their monthly income. It can be 35 to 40 per cent of the monthly pay. But as time passes, income most likely increases, and this brings an opportunity to ease the burden of the loan. Most banks have a 3-year lock-in period for any prepayment. But after that, one can make a prepayment. 

Any prepayment that a borrower makes is added to the loan's principal amount. Since the principal amount reduces, the interest on it also trimmed.

The bank gives two choices, either the borrower can choose to decrease their EMI amount and keep the loan tenure the same. In this option, their interest amount will decrease. Plus, they can continue taking tax benefits of up to Rs 1.50 lakh on the principal amount under Section 80C of the Income Tax Act, 1961, and Rs 2 lakh on interest under Section 24 of the same.

In the second option, their EMI will remain the same, but the interest amount will reduce considerably, and the loan tenure will also be shortened. 

 

The best is to calculate both scenarios, keeping the tax benefits in mind, and assessing your own financial goals. 

For our home calculation, we will take the example of a Rs 85 lakh home loan for 25 years at a 9.5 per cent interest rate. 

The estimated EMI will be Rs 74,264, the estimated interest in 25 years will be Rs 1,37,79,265, and the estimated repayment will be Rs 2,22,79,265.

The total amount of the prepayment will be Rs 8,50,000 (10 per cent of the principal). It will be made in 3 instalments of equal amount (Rs 2,83,333). The prepayment will be made in the 3rd, 4th, and 5th years of the loan tenure. 

E.g., if the loan started in November 2024, the first prepayment of Rs 2,83,333 will be in November 2027, the second of the same amount will be in December 2028, and the third of the same amount will be in January 2029.

The estimated amount saved in interest will be Rs 40,22,753.

The estimated months saved thus will be 65 months. It means a 300-month (25-year) loan will be repaid in 235 months.

In that case, the estimated EMI will be Rs 66,493, Rs 7,771 less than the earlier EMI of Rs 74,264. However, the interest saved in that case will be Rs 11,31,301.