Home Loan Prepayment Calculator

What is a Home Loan Prepayment Calculator?

A home loan prepayment calculator is an online resource designed to assist borrowers in evaluating the effects of making additional repayments on their home loan. It shows how prepaying a loan can shorten the loan term, lower total interest, and reduce EMIs. 

How Can Home Loan Prepayment Calculator Help You?

A home loan prepayment calculator gives valuable insights into how making extra payments on your home loan can affect your repayment timeline and your new EMIs. Below are some of the key benefits of a pre-payment loan calculator. 

1. Saves Interest Costs

• The calculator helps you analyze the possible interest savings that can be achieved by making pre-payments on loans. Understanding these savings can motivate you to make proactive steps towards reducing your debt more efficiently. 
• Even minor pre-payments can substantially decrease the overall interest paid throughout the loan. 

2. Helps in Financial Planning 

• You get numerous options when it comes to paying off your debt. You can either make one big payment upfront, or you can spread it out and make smaller payments regularly. 
• It helps determine if prepayment is better than investing the extra money elsewhere. 

3. Adjust your EMI Strategy

If permitted by your lender, you have the option to either maintain your current EMI while reducing the loan tenure or lower your EMI with the tenure remaining the same. 

4. Provides Instant & Accurate Results 

• The calculator eliminates the need for complex manual calculations, streamlines processes and reduces the possibility of human error.
• It gives accurate EMI amounts for various pre-payment scenarios.

How Does a Home Loan Prepayment Calculator Work?

A home loan prepayment calculator works in the following ways:

1. Enter Loan Details

• The total loan taken 
• The annual interest rate charged by the lender 
• The repayment period (in months)

2. Enter Pre-payment details: Input the extra amount you wish to prepay and reduce the total outstanding amount. 

3. Calculation Process: The calculator accurately evaluates the prepayment amount that contributes to decreasing the principal loan amount. It then recalculates the new EMI

4. Results: The results provided show the new EMI and the Remaining Principal Amount. 

Formula to Calculate Home Loan Prepayment Calculation

Home loan prepayment calculation determines the new EMI amount after making a prepayment. 

1. EMI Amount before Pre-payment

EMI = [P * r * (1 + r)^n] / [(1 + r)^n – 1]

Where, 

P = Outstanding Amount

r = Monthly interest rate (Annual Interest rate /12/100)

N = Total number of months (Loan tenure in months)

2. EMI Amount after Pre-payment

After making a pre-payment, the Remaining Principal Amount (P’) is:

P’ = P – Pre-payment Amount

If the borrower keeps the original loan tenure (n)  and wants to reduce the EMI instead, the new EMI (EMI’) is recalculated using the same EMI formula (as above) with the updated P’. 

EMI’ =  [P’ * r * (1 + r) ^ n] / [(1 + r)^n – 1]

Example of Home Loan Prepayment Calculation

Suppose you took a loan of INR 10,00,000 at an interest rate of 9% per annum for 5 years. 

If you prefer lower monthly EMIs, the lender will adjust the EMI while keeping the tenure the same (5 years). 

We will follow the steps below to evaluate the revised EMI with a prepayment amount of INR 1,00,000. 

Step 1: 

Calculate the Original EMI with the formula mentioned above 

Where, 

• P = INR 10,00,000
• r = (9/12) * 100 = 0.0075 (Monthly Interest Rate)
• n = 5 * 12  = 60 months

EMI = [ 10,00,000 * 0.075 (1 + 0.0075)^60 ] / [ (1 + 0.0075)^60 – 1]

Original EMI = INR 20,758

The prepayment reduces the outstanding principal, so we will; 

• Deduct the prepayment amount. 
• Recalculate the EMI for the new principal 

Step 2: 

Compute the Remaining Principal Amount

Remaining Principal Amount (P’) = Original Loan Amount – Prepayment 

= INR 10,00,000 – INR 1,00,000

= INR 9,00,000

Step 3: 

Insert the values for the revised EMI;

• New Principal (P’) = INR 9,00,000
• Interest Rate Amount = 9% 
• Monthly Interest Rate = 0.0075
• Tenure (n) = 60 months

Using the same EMI formula,

New EMI = [ 9,00,000 * 0.0075 * (1 + 0.0075)^60 ] / [ (1 + 0.0075)^60  – 1 ]

= INR 18,683

How to Use Pocketful Home Loan Prepayment Calculator?

Below is a step-by-step guide on how to use Pocketful’s EMI Calculator; 

Step 1: Enter the Outstanding Amount: 

Input the outstanding loan amount before prepayment. 

Step 2: Set the Rate of Interest per annum: 

Enter the remaining loan balance before prepayment. 

Step 3: Select the Period

Choose the remaining loan tenure in months. 

Step 4: Enter the Prepayment Amount: 

Input the amount you plan to prepay.  

Step 5: Results 

The calculator will instantly display the NEW EMI depending on your inputs (Example – INR 17,610)

Step 6: Final Calculation

Remaining Principal Amount = Outstanding Amount – Prepayment Amount

This shows the new loan balance after prepayment.