Guide To Using Prepayment Calculators: Save Time & Money

By Author: Saumya
Total Articles: 9
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Home Loan prepayment is an effective way for borrowers to use any extra income they receive to reduce their Home Loan debt and repay it before the originally planned tenure. Paying an amount as little as one extra EMI per year would help you close your Loan much faster. Lenders provide an online Home Loan partial prepayment calculator to help you understand the effect of making part prepayments on your Home Loan.
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. A Home Loan prepayment calculator lets you repay your Loan 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.
How does the Loan prepayment ...
... calculator work?
These days, many lending institutions offer a free Home Loan prepayment calculator, which gives instant results. You can use this tool to determine the amount of savings you can make by opting for part prepayment on your Home Loan. Fill in the original Loan amount, original tenure, interest rate, number of instalments already paid, prepayment amount, and revised EMI amount to see the interest savings.
Rules for part prepayment
Home Loan part prepayment is a popular option for borrowers, as it helps reduce debt and save on interest costs. According to RBI guidelines, lenders cannot levy prepayment charges on floating interest rate Home Loans taken for non-business purposes. Borrowers can use additional income, such as bonuses, investment dividends, or unexpected earnings, to reduce the principal of their Home Loan.
To better understand the potential savings, borrowers can use a Housing Loan prepayment calculator. Some lenders offer floating interest rates linked to the Retail Prime Lending Rate. Increasing your monthly EMI payment and/or making part prepayment of the outstanding Loan amount will not only accelerate your journey to debt-free homeownership but also result in substantial interest savings.
Does it attract additional charges?
One should check if their Housing Loan has a prepayment clause before signing the Home Loan agreement. Also, check if there are any additional fees or charges attached to making a prepayment against the Housing Loan. Some lenders do not charge foreclosure fees for partial prepayments or prepayments made towards Home Loans taken at floating interest rates for non-business purposes.
It is generally advisable to prepay a Home Loan early or increase the EMI if you have additional income. It can reduce the outstanding Loan amount, lower the interest burden, and shorten the tenure, saving you money in the long run.
Conclusion
To make a prepayment for a Home Loan, you can choose to prepay a specific sum towards your principal in addition to your regular EMI instalments. Plan your finances, set a predetermined amount aside annually, and use it to make a principal reduction prepayment.