A Complete Guide to Home Loan Prepayment Calculator

A home loan is an expensive ordeal, and every borrower is looking for ways to reduce their debt amount. One way to do this is by making prepayments on your home loan amount. In the future, if you come across some extra funds, you can use those funds to reduce the financial burden. When that happens, you can use the online tool known as a home loan prepayment calculator to establish how much money you will be saving by making prepayments against your home loan. 

What is a Home Loan Prepayment Calculator?

A home loan is a secured loan where the borrower pledges their ready-built home or under-construction home to a lender as collateral to secure the purchase of that property. The borrower is to repay this loan in the form of monthly installments known as EMIs at an economical interest rate for a long-term period that ranges between 20 to 30 years.

Paying these EMIs for such a long duration can be financially troublesome, but you can always opt to make prepayments on a home loan. A prepayment is to make a lump sum payment towards the principal loan amount before the tenor ends, and these payments exclude the EMIs that you are already making.

A long-term home loan is offered with lower monthly instalments, but the total interest amount payable is much higher. A prepayment will significantly reduce your loan amount and even your monthly installments.

Before you decide to make prepayments against your home loan, you must speak to your lender to establish the lender's home loan prepayment charges.

How does a Home Loan Prepayment Calculator work?

A home loan prepayment calculator is an online tool that helps you decide the viability of a prepayment against your home loan. This online tool is easy to use and hassle-free. Here is how you can use one:

Step 1: Visit any of the home loan prepayment calculators available online

Step 2: Enter your current outstanding home loan amount

Step 3: Enter your home loan tenor 

Step 4: Enter the rate of interest applicable to you 

Step 4: Enter the home loan prepayment amount you are willing to make 

Step 5: Click on Submit 

Step 6: Your new EMI will be displayed on the screen, which is calculated on the basis of the details you have submitted.

What are the benefits of a home loan prepayment calculator?

A home loan prepayment calculator is a useful tool to ensure you are making a calculated decision because this can help you manage your finances accordingly and help establish your affordability. If the prepayment is within your affordable range, then it can help reduce your financial burden by reducing your total debt, reducing EMI's, and even reducing your total interest outcome.

What factors should you take into account before making prepayments?

• A borrower must take into account their existing financial obligations to ensure that making prepayments will not be a hindrance to their retirement plans, daily expenses, medical emergency funds, etc.

• Keep in mind that a home loan is a loan secured against your home, and if you default on your EMIs, then the lender is well within your rights to seize your property to recover their losses.

• Your loan prepayment amount must be well within the lender's permissible limits, so you must speak to your lender to know the acceptable limits of making prepayments against your home loan.

• Every lender has applicable prepayment charges, so you must consider the costs involved as well before making a decision.