A home loan prepayment calculator allows you to clearly understand how prepayment lets you pay off your home loan faster. Prepayment of home loan or repaying your home loan before the end of the loan tenure is a good step, as it helps to overcome the burden of loan liability and save in the long run.
What is Home Loan Prepayment?
Prepayment is a facility provided by the lending institution that allows you to repay your home loan before the completion of your loan tenure. Loan prepayment helps in reducing the outstanding owed amount which further provides you with two benefit options: (i) to lower the Equated Monthly Instalment (EMI) amount and keep the tenure the same (ii) to reduce the tenure and keep the EMI the same. The former one allows you to save capital and reduce your financial burden, while the latter lets you finish your loan liability faster. Also, it is important to note that the prepayment amount must be at least 3 times your EMI.
What is Home Loan Prepayment Calculator?
A home loan prepayment calculator is an online tool that helps you to check the positive impact of the prepayment on your loan. It gives you accurate results on the basis of certain details, such as Loan Amount, Tenure, Rate of Interest and Prepayment amount that you wish to pay. After submitting these details, you will get to know how much you will save on EMIs and the loan tenure.
Also Read: 5 Smart Ways to Pre-Pay Your Home Loan
How to Use Home Loan Prepayment Calculator
Home Loan Prepayment Calculator uses details like Loan Amount, Tenure, Rate of Interest and Prepayment amount to calculate and show the impact of your prepayment on your home loan. Mentioned below are the steps to be followed to use the calculator.
- Enter the principal amount of the loan:This is the total loan amount borrowed from a bank or an HFC
- Enter the rate of interest: This is the interest applicable to your home loan, as agreed and mentioned in the loan agreement
- Enter the loan tenure: This is the time within which you need to completely repay your loan amount
- Enter the prepayment amount: This is the amount that you wish to prepay against your home loan (this amount must be at least 3 times your EMI)
Once all the details are provided, you will obtain two results:
- EMI Saved:This shows the reduction in your EMI and monthly savings post prepayment.
- Tenure Saved:This shows the reduction in your loan tenure post prepayment
Let’s understand how the home loan prepayment calculator works, by taking a general scenario and assuming the below-mentioned home loan details.
Outstanding Loan Amount: Rs. 10 lakh
Balance Tenure: 360 months
Rate of Interest: 8.60%
Prepayment Amount: Rs. 1 lakh
Present EMI: Rs. 7,760
Now, after filling-in the above-mentioned details in a home loan prepayment calculator, you will be able to check your savings in terms of EMI or the loan tenure, basis the option chosen.
For the above data, (i) if you wish to save on the EMI, then your new changed EMI after the prepayment of home loan would be Rs. 6,984. (ii) if you want your loan tenure to be reduced, then your new loan tenure after the prepayment would be 250 months.
Check Also: Home Loan EMI Calculator
Home Loan Prepayment Rules
As per the guidelines from RBI and NHB, following are the prepayment rules for banks and HFCs.
Cases when Prepayment Not Allowed
- Banks are not allowed to charge prepayment charges on floating home loan rates taken by individuals, either on part or full prepayment
- HFCs are not allowed to charge prepayment penalty on fixed-rate home loan taken by individuals,if the borrower makes the repayment from his own sources and not by borrowing from another bank or finance company
- HFCs are not allowed to charge prepayment penalty if the prepayment is done when the loan has become a floating rate loan
Cases when Prepayment Allowed
- In case of non-individual borrowers, banks are allowed to levy a prepayment penalty, as included in the loan agreement
- Banks are allowed to charge a prepayment penalty on fixed-rate home loans, as agreed by the customer in the loan agreement
- HFCs are allowed to levy prepayment penalty on fixed-rate home loans only if the borrower is repaying the loan by borrowing from another bank or HFC
- In case of dual-rate schemes banks are allowed to charge a prepayment penalty only if the loan is repaid during the period when it is a fixed loan rate
Read Also: Fixed home loan and Floating home loan
Benefits of Using Home Loan Prepayment Calculator
Home Loan Prepayment Calculator is a free tool that enables you to understand what impact will your prepayment have on the EMIs and loan tenure. Some of the benefits of Home Loan Prepayment Calculator are:
- Instant results:The calculator saves you from tedious calculations and does all for you
- Easy-to-use:This tool is easy for anyone to use. You just need to enter the details about your loan to see the results
- Different combinations:You can try different combinations of the principal amount, interest rate, tenure and prepayment amount to obtain the desired result. Recalculate as many times as you want
- 24*7 Access: You can use this calculator any time of the day
check Also: Benefits of Home Loan