Loan Prepayment & Extra Payment Calculator
See how paying a small extra amount every month towards your home loan or personal loan slashes years off your tenure and saves lakhs in interest.
How it works
In the early years of a long-term loan (like a 20-year home loan), most of your regular EMI goes toward paying interest. When you make an extra payment, 100% of that extra cash directly reduces the principal balance, accelerating the loan payoff schedule.
Formula
Interest Saved = I_original - I_prepaid
Extra payments directly reduce the principal balance early in the amortization cycle, drastically cutting compound interest accruing in future months.
| Symbol | Variable | Unit | Description |
|---|---|---|---|
| I_original | Total interest without extra payments | ₹ | |
| I_prepaid | Total interest with monthly extra prepayments | ₹ | |
| EMI_total | Base EMI + Extra monthly payment | ₹ |
Worked example
₹30 Lakh home loan at 8.5% for 20 years with ₹5,000 extra/month
- Loan Amount:
- ₹30,00,000
- Rate:
- 8.5%
- Tenure:
- 20 years
- Extra Payment:
- ₹5,000/mo
Base EMI is ₹26,035/mo. Adding ₹5,000/mo (total ₹31,035) reduces loan tenure from 240 months to 166 months (saving 6.2 years) and saves ₹11.23 Lakhs in total interest!
Limitations
Fixed-rate loans or non-individual corporate commercial loans may have contractual prepayment fees.
Frequently asked questions
Does RBI allow prepayment of home loans without penalty?
Yes. Under Reserve Bank of India (RBI) guidelines, banks and NBFCs cannot charge any foreclosure charges or prepayment penalties on floating-rate housing loans for individual borrowers.
Should I reduce my EMI or reduce my loan tenure when prepaying?
Reducing your loan tenure while keeping EMI payments constant delivers the maximum interest savings. Reducing EMI gives immediate cash flow relief but saves less total interest over the life of the loan.
Is it better to invest in equity SIPs or prepay my home loan?
If your expected long-term post-tax investment return (e.g. 12-14% in mutual funds) exceeds your home loan interest rate (8-9%), investing may yield higher net wealth. However, prepaying gives guaranteed risk-free interest savings and emotional peace of mind.
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Last reviewed: 2026-08-22.