Looking to make a partial prepayment against your Home loan? Does your Home Loan consume a big chunk of your salary? Home Loan Prepayment Calculator will help you to understand the viability of the loan prepayment options. It will give you clarity on what is going to be your revised EMIs after making the partial payment. Calculating the amount manually can be a tedious job, whereas the Home Loan Prepayment Calculator can make the calculations easy.
Let’s understand in detail how home loan repayment works, what is Home Loan Eligibility Calculator and how to use it. We will also check the advantages of the Home Loan Prepayment Calculator, and things to consider before making a home loan prepayment in India.
What is Home Loan Prepayment?
“Prepayment of home loan” means paying off a mortgage loan before its agreed-upon term. Prepayment might lighten your financial stress.
Prepayment of a loan reduces the EMI or shortens the loan term. It reduces interest and saves money. The total interest amount increases as the loan term increases, partially prepaying the amount can reduce your debt load. Prepayment can cut interest rates and shorten repayment durations. Your monthly loan payments will be substantially lower.
If you’re considering a prepayment, a prepayment calculator can help. Check the following points to understand what the home loan prepayment calculator requires:
- Principal Amount: The principal amount is the sum of money you borrowed from the lender.
- Outstanding loan amount: It is the balance you have with the lender.
- Balance Tenure: The balance tenure is the total number of outstanding EMIs.
- Part Payment Amount: The part payment amount is the portion of the outstanding loan balance that you want to pay. Three times the EMI is the required minimum part payment amount.
How Does a Home Loan Prepayment Calculator Work?
A prepayment calculator will help you figure out how much you can save by paying off your loan early.
A home loan prepayment calculator is a useful online tool for calculating the impact of prepaying your loan. Keep these four key things in mind, when you decide to prepay the loan. Most online calculators will help you with all four of them.
- The share or total sum of EMIs put away
- Amount of the next EMI payment due
- Total recalculated EMI
- Term of Loan Revisions
Through this method, you can calculate your new EMI and your potential for savings. To do the calculations, you need to fill in your loan information, which consists of –
- Existing Loan Balance
- Repayment Terms
- Inflationary Interest Rate
How to Use the Prepayment Calculator for Home Loans?
Let’s now examine how this tool functions. To demonstrate this, let’s use the following integers as an example:
Rs. 20 lakh is the loan amount (principal).
Duration: 20 years
The interest rate is 9% annually.
You may check that your EMI without any advance is Rs. 17,995 by using an EMI calculator.
Let’s assume that you prepay Rs. 1 lakh now. Your current EMI is Rs. 17,095. This is a monthly savings of 5% on the EMI of Rs. 900. You can also decide to shorten your tenure while keeping your EMIs at Rs. 17,995.
You can learn how to pay off your loan much more quickly by using this calculator.
Things to Consider Before Prepaying Your Loan
Do keep the following factors in mind, before planning to prepay a loan:
- Required funds in the future
Before making a prepayment, you should also think about your future financial needs. Your funds will be gone once you pay off your loan in advance, which is typically the extra money. Before you decide, be certain that you are aware of your financial need.
- Tax reductions
You cannot receive income tax advantages if you pay back your loan. Currently, Section 80C allows you to claim a tax exemption of up to Rs 1.5 lakh per year on principal amount repayment. Additionally, you may seek an exemption from Section 24 interest payments of up to Rs 2 lakh (b). Additionally, In the Union Budget for 2021–22, the Finance Minister also increased the benefits of Section 80 EEA, allowing an additional deduction of Rs. 1.5 lakh on interest. (more than the Rs 2 lakh permitted under 24b).
- Check savings after paying
If you can save enough on your interest amount then only you should think about prepaying your loan. You could avoid prepaying your loan if you are not saving a sizable sum. For example, the interest component of your EMI is significantly lower in the later years of a home loan than it is in the early years. Therefore, you won’t save much if you prepay the debt during the last years of the loan.
- Possibilities for investment
The savings you’ll get from prepaying the loan should be compared to the profits on any other investment possibilities you may have. It is preferable to invest your money if the returns are higher than to use it to pay off your loan early.
Advantages of Home Loan Prepayment Calculators
To make sure you are making an informed choice, use a home loan prepayment calculator. It can help you manage your finances effectively and determine your affordability. If the prepayment is within your means, it might lessen your financial burden by decreasing your overall debt, EMIs, and even the total amount of interest accrued.
Eligibility for Prepayment of a Loan
As long as the lender accepts it, anyone can make a full or partial payback on their outstanding debt. Some lenders forbid prepayment since it could result in losses for them. Checking the prepayment clause before you sign your home loan agreement is crucial. You can also use the Home Loan Eligibility Calculator to check your eligibility. Do check if your bank charges any fees for early loan payback.
Home Loan Prepayment Calculator is an online tool that calculates monthly EMI for your loan and helps to check if the repayments that you make every month can help you shorten the loan tenure. It will help to know how much you will save by paying off the home loan early.
Whether prepaying the loan is the best choice for you or not should be determined carefully by yourself. Visit the official website of Piramal Finance to get in-depth knowledge of prepayment calculators. Do check their informational financial articles along with other products and services they deal in.