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How to Utilise a Home Loan Prepayment Calculator?

It is advisable to part-prepay or prepay your loan when you have an adequate fund. Pre-paying enables you to lower the interest burden, and thus the cost of the loan.

To help you with these prepayments and their calculation, financial institutions and NBFCs have introduced a home loan prepayment calculator. This calculator helps you estimate the most suitable pre-payment amount to reduce your total cost of the loan.

Follow the guide mentioned below to use this calculator –

  • Visit the Official Website

To use this calculator, visit your lender’s official website and search for the calculator section. Under the calculator section, you will find different types of calculators such as EMI calculator, foreclosure calculator, home loan eligibility calculator, prepayment calculator, etc. Click on the home loan prepayment calculator to calculate your prepay amount. 

  • Provide the Necessary Details

Once you click on the prepayment calculator, you will be redirected to a new page. Here, you will have to provide some necessary information regarding your loan such as loan amount, interest rate, EMI tenure, etc. 

  • Choose the Prepayment Amount

After you have submitted the details of your loan, provide the amount you want to prepay. Make sure that the amount you wish to pay is three times of your EMI. 

  • Study the Tables

Once you have provided all the details, you will be shown two tables named EMI saved and tenure saved. 

The ‘EMI saved’ option will show the amount you will save on your EMI if you make a prepayment. The ‘tenure saved’ option will show the reduction in the EMI tenure after you make a prepayment.

  • Choose Your Reduction

After you have studied the table, you can choose to either save on your EMI amount or tenure. Make sure to select the option you are comfortable with. Also, have a proper analysis of your finances before you make any decisions on the prepayment of home loan. 

Prepayment is one of the ways to reduce home loan tenure and EMI, and this calculator can help you do the same.

How Does the Calculator Work?

The process of the calculator has been explained below through the help of an example. 

  • Principal loan amount- Rs. 30 Lakh
  • EMI tenure- 15 years (180 months)
  • Rate of interest- 10%

Using a home loan calculator, you will find that your EMI amount will be approximately Rs. 32,238. 

Now, suppose the prepayment amount you wish to choose is Rs. 2 Lakh. Using the home loan prepayment calculator, you will be able to calculate your EMI, which will be approximately Rs. 30,089. The ‘EMI saved’ amount will be around Rs. 2,149, which is a reduction of 6.67%. Also, the ‘tenure saved’ due to prepayment will be around 156 months. 

However, while you wish to prepay your loan, your lender will charge a certain amount for making such payments. Several financial institutions and NBFCs provide home loan at an attractive prepayment and foreclosure charge. There are several NBFCs that offers loans and other financial products at competitive interest rates and minimum prepayment and foreclosure charges against minimal documents. They also provide a balance transfer facility, flexible EMI tenure, instant approval, online account access, etc. 

Make sure to check the home loan prepayment rules and prepayment charges, which will depend on the lender and the type of interest rate. Prepayment charges generally range anywhere between 2% and 4%. However, some NBFCs do not charge this additional fee if you are paying a floating rate of interest.

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