Home loan prepayment calculator: how much does paying extra save?
Paying a little extra every month goes straight to the principal, so less interest builds up and the loan ends years early. On a ₹40 lakh home loan at 8.5%, an extra ₹5,000 a month on top of the EMI saves about ₹12.99 L of interest and clears the loan 5 years 2 months sooner.
This calculator uses the same month-by-month projection as the debt optimiser inside Map My Risk, and shows what prepaying earns after tax, so you can compare it with investing the money instead.
Your figures stay in your browser. Nothing is sent anywhere until you choose to start the full assessment.
Open the calculator to work out your own figure.
How the number is worked out
- Each month, interest is charged on the outstanding balance at your yearly rate divided by twelve, and your EMI is paid.
- With prepayment, the extra amount is paid on top of the EMI every month and comes straight off the principal.
- The loan is projected both ways, month by month, until it is cleared. The difference in total interest is what prepaying saves, and the difference in months is how much sooner the loan ends.
- What prepaying earns is the loan’s own rate: every rupee prepaid stops being charged that rate, with certainty. Under the old tax regime, interest on a home you live in is deductible up to ₹2,00,000 a year, which lowers that rate; under the new regime it is not deductible.
A worked example
Arjun owes ₹40 lakh on his home loan at 8.5%, with an EMI of ₹34,713 that clears it in 20 years. Over that time he would pay about ₹43.31 L in interest.
If he adds ₹5,000 a month, the loan ends in 14 years 10 months and the interest falls to about ₹30.32 L: a saving of ₹12.99 L. Prepaying earns him 8.5% a year, risk-free, under the new regime; under the old regime in the 30% slab, the interest deduction brings that down to about 6.9%.
| Loan outstanding | ₹40 lakh |
| EMI | ₹34,713 |
| Extra every month | ₹5,000 |
| Loan ends in, without prepaying | 20 years |
| Loan ends in, with prepaying | 14 years 10 months |
| Interest saved | ₹12.99 L |
Assumptions
- The rate stays the same for the whole loan. Floating rates change, so treat the result as a guide.
- The EMI stays the same and the loan ends sooner. Banks may instead offer to keep the term and lower the EMI, which saves less interest.
- The extra payment is made every month from now on. A one-time prepayment is not modelled here.
- Only the interest deduction is considered for tax. The deduction for principal under 80C is shared with PF, PPF and other investments, so it rarely changes the answer.
Frequently asked questions
Is it better to prepay a home loan or invest?
Prepaying earns exactly your loan rate after any tax relief, with no risk: on an 8.5% loan that is 8.5% under the new regime. Investing may earn more over long periods, but not with certainty. Many people do both, and keep an emergency fund before either.
Should I reduce my EMI or my loan tenure?
Keeping the EMI and shortening the tenure saves more interest, because more of each payment goes to principal for longer. Lowering the EMI instead frees cash each month but saves less.
Is there a penalty for prepaying a home loan?
Banks and housing finance companies cannot charge prepayment or foreclosure penalties on floating-rate home loans taken by individuals, under RBI rules. Fixed-rate loans can carry a charge, so check your loan agreement.
Do I lose the tax benefit if I prepay?
Only under the old regime, where interest on a home you live in is deductible up to ₹2,00,000 a year. Prepaying reduces the interest and so the deduction, which is why this calculator shows the rate prepaying earns after tax. Under the new regime there is no such deduction to lose.
Is this financial advice?
No. It is an educational estimate built from the figures you enter. For advice on your whole situation, speak to a SEBI-registered investment adviser.