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Home Loan Prepayment Calculator: Nowadays it is common to take a home loan to buy a house, which usually has a tenure of 20-30 years. Paying long EMIs can be a headache, so home loan prepayment is a great option. It helps you reduce the interest burden and get financial freedom by repaying the loan on time. It is an effective way to reduce the long-term pressure on your pocket.

But the big question is when should one make a prepayment?

By making prepayment wisely, you can avoid paying lakhs of rupees in interest to the bank. It is most beneficial when you do it in the initial stage of the loan. This is because the bank charges the highest interest in the beginning. The initial part of your EMI is mostly interest, and the principal decreases very slowly. Therefore, by making an early prepayment, you can reduce your total interest burden significantly.

So if you have extra money, it is wise to make a prepayment in the initial years. This will reduce your principal amount rapidly and save lakhs of rupees in interest. The effect of prepayment is not so effective in the mid or end stage of the loan.

Suppose you took a home loan of Rs 75 lakh (home loan news) for 10 years at an interest rate of 9.55 percent. Your initial EMI will be around Rs 97,254. Out of this, only Rs 37,566 will go to your principal while Rs 59,688 will be deducted as interest. That is, in the initial years, most of your money will go to the bank's pocket as interest.

Prepayment directly affects the principal-

Prepayment of a home loan directly reduces your outstanding principal. For example, a prepayment of Rs 2 lakh on a loan of Rs 28 lakh will make it Rs 26 lakh. This reduces the interest component in your EMI and also reduces the tenure of your loan so that you can become debt-free soon.

Now the question is how should the prepayment be done. There are many ways to make prepayment, which depend on your financial situation. Institutions like the Bank of Baroda suggest that you start prepayment with a small amount and increase this amount a little every year. For this, you will have to save a little every year. Gradually, in this way, you can make a good prepayment.

What are the options for prepayment?

There are two effective ways to repay home loans quickly. You can make a fixed prepayment every year according to your income and expenses. This will reduce the principal of your loan rapidly and you will be able to repay it quickly. The second way is to pay a little more than your EMI. For example, instead of an EMI of ₹ 20,000, pay ₹ 23,000 or ₹ 25,000. This additional amount will directly reduce your principal, which will reduce the tenure of your loan and save interest.

Apart from this, if your income has increased or you have received a large amount in some other way, then you can repay the entire remaining loan amount at once. This will save you from the heavy interest expense and will also give you mental relief.

Keep these things in mind-

However, before deciding on prepayment, do understand whether there will be a prepayment charge on your loan? Usually, there is no charge on floating-rate home loans, but banks can charge a fee on fixed-rate loans. Therefore, read the terms and conditions of the loan carefully and talk to your lender openly, only then take any step.

Disclaimer: This content has been sourced and edited from Hr Breaking. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.