See what a lump sum prepayment saves, or what you must prepay to close the loan by a chosen month. Compare cutting the tenure against cutting the EMI.
How much do I need to prepay to close my loan in ten years?
Switch the mode at the top and pick the month you want to finish in. On a ₹50 lakh home loan at 8.5% over 20 years, prepaying in month 24 to finish by month 144 takes ₹12,92,490. Push the finish to month 180 and it drops to ₹7,03,224. The maths is exact, not a search: to finish in a given month, the balance left after your lump sum has to equal the present value of the instalments still to come.
Should I reduce the EMI or reduce the tenure?
Reduce the tenure if your cash flow allows it. In the example above, cutting the tenure saves ₹10,69,153 while cutting the EMI saves only ₹3,86,266 on the same ₹5,00,000. Cutting the EMI keeps you in debt for the full term, and it is the term that generates the interest.
When is the best time to prepay?
As early as you can. The same ₹5,00,000 saves ₹16,03,691 if you pay it in year one and only ₹2,22,182 if you pay it in year fifteen. Early EMIs are almost all interest, so early principal cuts remove the most future interest.
Will my bank charge me for prepaying?
Not on a floating rate term loan taken in your own name: the RBI barred foreclosure charges and prepayment penalties on those. We cannot link the circular. This page used to cite an RBI notification that turns out to be a different circular. The RBI site search, its notification archive and its master circular index all fail to surface the right one from here. So treat this as the rule as we understand it, rather than as a document you can open. Your sanction letter must state any charge, so read that and ask the bank in writing. Fixed rate loans, loans to companies, and some business loans can still carry one.
Should I prepay the home loan or invest the money instead?
Neither is always right, and the comparison that settles it is the loan rate against what you would earn after tax. Prepaying an 8.5% loan is a guaranteed 8.5% return. An equity SIP may beat it over 15 years but carries real risk. Many people do both, and prepay only what they can spare without emptying the emergency fund.
Do I need to tell the bank which option I want?
Yes, and put it in writing. Many banks default to lowering the EMI because it looks generous. Ask them to keep the EMI and shorten the tenure, and check the revised amortisation schedule they send you.
Does a small monthly extra payment work as well?
It works very well. Paying one extra EMI a year on a 20 year loan typically ends it three to four years early. Use this calculator once for each lump sum, or simply model your yearly bonus as the prepayment amount.
What about the tax deduction I lose?
Prepaying reduces the interest you pay, so it can reduce the interest deduction you claim. Run the numbers on the deduction you actually use. For most borrowers the interest saved is larger than the tax benefit given up.