How a home loan prepayment calculator helps reduce interest burden and loan tenure

A prepayment calculator shows you what happens to your loan when you pay an extra amount beyond your regular EMI. It recalculates your outstanding balance and offers two options: reduce your EMI or shorten your tenure.

Housing loans with tenures up to 32 years* accumulate significant interest over time. Knowing when and how much to prepay can reduce total repayment. This article covers how the calculator works, when prepaying makes sense, and what trade-offs to weigh.

How can a prepayment calculator help reduce interest?

Enter your current outstanding balance (the amount still owed, not the original principal amount), interest rate, remaining tenure in months, and prepayment amount. The calculator instantly displays a revised EMI, lower than your current instalment amount. 

You can now review this figure and choose a shorter tenure with the same EMI, or the same tenure with a lower instalment amount per month. The first option allows you to pay off the debt sooner, at a much lower cost overall; the second, frees up cash monthly. The calculator makes the trade-off visible, so you can compare and choose based on your priorities.

Should you reduce tenure or EMI?

It depends on your monthly cash flow and total cost preference. A shorter repayment period reduces your total lending cost more and offers greater overall savings, but your payments every month stay the same. A lower EMI reduces your monthly outgo, but your overall savings will be much smaller. So, if you:

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  Have a stable income and low expenses: Reducing tenure is likely the better financial decision. 
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  Need more breathing room each month: Reducing the EMI may suit you better, even if the total interest saved is lower.

Why timing your prepayment matters

Housing finance uses a reducing balance method: interest is charged monthly on the outstanding principal, which reduces with each EMI, but slowly in the early years. The proportion of principal in each monthly instalment increases gradually over time.

Prepaying earlier, when the outstanding principal is higher, has a greater effect on reducing total expenditure.

When does running a prepayment calculation make sense?

When you want to understand the impact of prepaying a specific sum available before committing:

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  An annual work bonus can reduce your outstanding balance without affecting regular cash flow.
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  Proceeds from selling an asset can be channelled toward prepaying.
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  A pay rise may make a monthly instalment increase or lump sum payment manageable.
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  When a fixed deposit matures, decide whether reinvestment or early mortgage repayment offers better returns.
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  Once a major expense cycle ends, direct freed-up funds toward prepaying.

When is it not the right move to prepay?

Early repayment isn’t always the most sensible financial decision, even when funds are available:

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  If prepaying would leave you with under 3-6 months of expenses in liquid savings, it can create financial risk.
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  Clear credit card and personal loans first, as their rates are typically higher.
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  If you expect a large expense within 12-18 months (medical procedure, wedding, or property renovation), retaining liquidity is more practical.

How Bajaj Finance supports early settlement planning

For individual borrowers on a floating interest rate, Bajaj Finance charges no foreclosure or part-prepayment fees. Rates start at 7.25%* p.a. for salaried borrowers, with EMIs from Rs. 671/lakh*.

Who can apply?

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  Indian citizens residing in India
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  Salaried applicants between 23-67 years and self-employed applicants between 23-70 years
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  Salaried employees, professionals, and self-employed individuals with a CIBIL Score of 750+
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  Applicants must furnish: KYC, income proof, last 6 months’ bank statements, property documents, and business proof (self-employed only).

How to apply online?

1. Click on ‘APPLY’ on the Bajaj Finance Home Loan page.

2. Enter your name, mobile number, and employment type.

3. Select your loan type: fresh, balance transfer, or top-up.

4. Verify your phone number via OTP.

5. Enter your monthly income, required principal, and confirm property details.

6. Enter your DoB, PAN, and other details based on your occupation type.

7. Submit and await contact from a Bajaj Finance representative.

Prepaying works best when it fits your wider financial plan. A well-timed lump sum payment can reduce your total outgo and bring your loan closure forward. Visit the official website to use the prepayment calculator and explore the Bajaj Finance Home Loan. Apply now.

Disclaimer: No Business Standard Journalist was involved in creation of this content