Home loan prepayment calculator: why prepaying in the first 5 years saves the most

Using a home loan prepayment calculator, borrowers can estimate how a lump-sum payment can reduce total interest - especially in the early years of a loan. Enter your outstanding balance, interest rate, remaining tenure, and prepayment amount to see your revised EMI.

A home loan repays interest before principal. In the first few years, most of your EMI goes towards interest rather than reducing the loan balance. A prepayment made during this period cuts the principal, and therefore the interest, across a larger stretch of remaining time. The savings are noticeably higher than a similar prepayment made in year 15 or year 20.

On a Rs. 40 lakh home loan at 8.50% p.a. over 20 years, for instance, the total interest paid over the full tenure is nearly Rs. 43.31 lakh. A prepayment of Rs. 5 lakh in year 3 may reduce total interest by a significantly higher amount than the same prepayment in year 12. A home loan prepayment calculator helps you quantify this difference and choose the right time to act.

Home loans use a method called reducing balance interest calculation. Each month, interest is charged on the outstanding principal, not the original loan amount. In the early years, your outstanding principal is at its highest, so the interest component of every EMI is also at its highest.

A standard 20-year loan on Rs. 40 lakh at 8.50% p.a. carries an EMI of roughly Rs. 34,713. In the first year, the majority of that EMI is interest. The principal portion grows slowly over time. This structure means a Rs. 3 lakh prepayment in year 2 reduces a large principal, removing interest across 18 remaining years. The same prepayment in year 17 reduces a smaller principal, with only 3 years left to generate savings.

Arun took a Rs. 40 lakh home loan at 8.50% p.a. for 20 years. His Rs. 40 lakh home loan EMI works out to Rs. 34,713 per month. In year 2, his company paid him a bonus of Rs. 5 lakh. He considered a fixed deposit or a prepayment. Because he is in year 2, the bulk of each EMI is still servicing interest. Using the home loan prepayment calculator, he found that prepaying Rs. 5 lakh at this stage could reduce his total interest outgo by approximately Rs. 4.79 lakh over the remaining tenure.

A home loan prepayment calculator takes your current loan details and a proposed lump-sum payment. It then shows you the revised EMI after that payment is applied. The inputs are straightforward, and the output is immediate.

Returning to Arun’s example from earlier: In year 2, Arun's outstanding balance is approximately Rs. 38.34 lakh, with 216 months remaining. He enters these figures into the Bajaj Finance Home Loan Prepayment Calculator and adds Rs. 5 lakh as the proposed prepayment. His outstanding principal drops to Rs. 33.34 lakh, and his revised EMI is Rs. 30,186. Now, Arun has two choices: keep the same tenure and pay a lower EMI, or keep the same EMI and close the loan earlier

This is the most practical decision once you've chosen to prepay. Both options save interest compared to not prepaying. But they work differently and suit different financial situations.

So, how does Arun choose? After his Rs. 5 lakh prepayment, Arun's revised outstanding balance is Rs. 33.34 lakh.

Arun has a stable income and no large expenses planned. Option B suits him better. A borrower with uneven cash flow or an anticipated large expense in the next year may prefer Option A for the monthly flexibility it provides.

Prepayment is not the right move in every situation. Consider holding the funds if any of the following apply:

Confirming eligibility and organising documents before applying reduces delays after submission. Here is what Bajaj Finance checks and what you need to have ready.

Early prepayment can reduce total interest paid by a meaningful amount, because it reduces the principal when the remaining tenure is still long enough for the savings to compound. A home loan prepayment calculator helps you compare repayment choices before committing, so the decision is based on your actual figures rather than estimates. If you are planning a new home loan or reviewing an existing one, Bajaj Finance Home Loan is worth considering. It offers repayment tenures of up to 32 years*, loans of up to Rs. 15 crore*, and a home loan prepayment calculator to estimate your revised EMI before you decide.