How to quickly Prepay Rs 1 Crore home loan?

How to quickly Prepay 25-year Rs 1 Crore home loan in a few years.

House purchase in India (2023) is one of the biggest decisions for most people, both financially and emotionally. So if you have purchased a house with Rs 1 Crore home loan, then first, some congratulations are in order.

But I am sure that thoughts of home loan prepayment would have already crossed your mind. Most people would love to live a loan-free life eventually. As a result, you would want to go for preclosure of a home loan by prepaying Rs 1 Crore home loan as early as possible.

That is, all said and done, you want to know how to repay a home loan fast. Right?

Sidenote – There is a mathematical case for not trying to go for home loan prepayment and preclose the home loan quickly as home loan rates in India are low. But that is not part of this discussion. This post focuses on people who want to get rid of their loans as quickly as possible. And that from my understanding, are in the majority.

There can be tons of home loan prepayment tips and home loan prepayment tricks. But before I share tips on how to repay home loan quickly, let’s first see how does a regular Rs 1 crore home loan work. And then figure out how much is monthly EMI for Rs 1 crore home?

The monthly loan EMI depends on several factors like the loan amount, loan tenure, interest rate, etc.

For the sake of simplicity, let’s keep the home loan rate fixed at 8%.

To give you an idea about the various possibilities of Rs 1 crore loan EMI (and total interest paid), here is a ready reckoner:

• Rs 1 crore home loan EMI for 30 years at an interest rate of 8% has a monthly EMI of Rs 73,376. This means that the total interest paid is Rs 1.64 Cr during the full loan tenure without any prepayments.
• Rs 1 crore home loan EMI for 25 years at an interest rate of 8% has a monthly EMI of Rs 77,182. This means that the total interest paid is Rs 1.31 Cr during the full loan tenure without any prepayments.
• Rs 1 crore home loan EMI for 20 years at an interest rate of 8% has a monthly EMI of Rs 83,644. This means that the total interest paid is Rs 1.01 Cr during the full loan tenure without any prepayments.
• Rs 1 crore home loan EMI for 15 years at an interest rate of 8% has a monthly EMI of Rs 95,565. This means that the total interest paid is Rs 72 lakh during the full loan tenure without any prepayments.
• Rs 1 crore home loan EMI for 10 years at an interest rate of 8% has a monthly EMI of Rs 1.21 lakh. This means that the total interest paid is Rs 45 lakh during the full loan tenure without any prepayments.

So that is the monthly EMI for a housing loan of Rs 1 crore or your EMI on home loan of Rs 1 crore for home loan interest rate of 8% for different tenures.

Since we are focusing on prepaying the home loan, it means that we want to focus on reducing the loan tenure. Right? And that means that to start with, the loan tenure should be long enough to consider reducing it.

So we focus on a loan tenure of 25 years.

This means, that we are focusing on how to repay the home loan quickly and hence, we stick with a scenario where: You have taken Rs 1 crore home loan at 8% for 25 years. In this scenario, the monthly EMI is Rs 77,182 and the total interest paid is Rs 1.31 Cr during the full loan tenure without any prepayments. Or looked at from another angle, home loan EMI per lakh of Rs 772.

This is how the home loan gets paid off using the amortization table. That’s the loan amortization schedule for Rs 1 crore loan.

And did you notice that even after 5 years of regular payment (which is 20% of the tenure), only 7.7% of the loan is paid off? This shows that when you take long tenure loans, a major part during the first few years is only about paying interest. That is, the interest is front-loaded.

Just to give you an example, if you make a one-time prepayment of Rs 10 lakh in the first year of the loan, then your total interest payment of the loan is Rs 86.3 lakh. And if you make it instead in the 6th year, then the total interest outgo will be Rs 1.04 Cr. It is, for this reason, it is said that if you have to prepay, then prepay during the first few years as it will help you save more on interest payout.

Coming back, if you pay your EMIs regularly on time, then for a loan of Rs 1 Crore, you end up paying additional Rs 1.31 Cr as the total loan interest.

And that hurts. Right?

But there is a way to reduce the interest you pay to the bank.

And that is if you know how to repay home loan quickly or how to repay home loan fast. But remember, different lenders have different home loan prepayment rules. So you need to be aware of those rules first.

What is home loan prepayment?

A loan prepayment is when you pay an additional amount (over and above the regular EMIs) ahead of scheduled EMI time.

So prepayment is a facility that helps you repay your home loan quickly and before the completion of your loan tenure. But of course, you need to have surplus funds to do anything about preclosure of home loan.

Since you are contemplating closing the loan quickly, let’s see how different prepayment approaches help you decide how to repay the home loan quickly.

Note – Some lenders may have home loan pre-closure charges. Do check with your lender for this.

Rs 1 Crore Home Loan Prepayment

What happens when in addition to your regular EMI of Rs 77,182, you decide to pay an additional amount every month? Let’s say Rs 10,000. That is you pay a total of Rs 77,182 + Rs 10,000 every month = Rs 87,182.

Your loan which was originally scheduled for 25 years, instead gets over in just 19 years. And the total interest paid reduces to Rs 90.6 lakh (instead of the original Rs 1.31 Cr). That’s a lot of savings.

So in a similar fashion, here are the savings and revised loan tenures for various monthly prepayment amounts:

• When you prepay extra Rs 5000 per month (in addition to the regular EMI of Rs 77,182), then loan tenure reduces from 25 years to 20 years and total interest paid is Rs 1.06 Cr (which means savings of Rs 25-26 lakh compared to the original Rs 1.31 Cr total interest).
• When you prepay extra Rs 10,000 per month (in addition to the regular EMI of Rs 77,182), then loan tenure reduces from 25 years to 19 years and total interest paid is Rs 90.6 lakh (which means savings of Rs 41-42 lakh compared to the original Rs 1.31 Cr total interest).
• When you prepay extra Rs 15,000 per month (in addition to the regular EMI of Rs 77,182), then loan tenure reduces from 25 years to 17 years and total interest paid is Rs 78.6 lakh (which means savings of Rs 52 lakh compared to the original Rs 1.31 Cr total interest).
• When you prepay extra Rs 20,000 per month (in addition to the regular EMI of Rs 77,182), then loan tenure reduces from 25 years to 15 years and total interest paid is Rs 69.9 lakh (which means savings of Rs 62 lakh compared to the original Rs 1.31 Cr total interest).
• When you prepay extra Rs 25,000 per month (in addition to regular EMI of Rs 77,182), then loan tenure reduces from 25 years to 13-14 years and total interest paid is Rs 62.9 lakh (which means savings of Rs 68 lakh compared to the original Rs 1.31 Cr total interest).
• When you prepay Rs 35,000 per month (in addition to the regular EMI of Rs 77,182), then loan tenure reduces from 25 years to 11 years and total interest paid is Rs 52.8 lakh (which means savings of Rs 79 lakh compared to the original Rs 1.31 Cr total interest).
• When you prepay extra Rs 50,000 per month (in addition to the regular EMI of Rs 77,182), then loan tenure reduces from 25 years to 9 years and total interest paid is Rs 42.7 lakh (which means savings of Rs 89 lakh compared to the original Rs 1.31 Cr total interest).

That was about monthly prepayments of the loan.

I am sure you would have noticed that just by pushing yourself a bit and paying a few extra thousand rupees every month can save you a lot of money in the long run. And it also reduces your loan tenure substantially.

So don’t worry if you do not have any lumpsum to prepay the home loan. Even the small periodic pre-payments can make a big difference and save you a lot of money in the long run.

But what if you cannot do monthly prepayments and instead want to use your annual bonus (or incentives) to pay it once a year or so?

Let’s evaluate the impact of annual prepayments on your Rs 1 crore home loan.

• When you make a one-time annual prepayment Rs 1 lakh once a year (in addition to regular monthly EMI of Rs 77,182), then loan tenure reduces from 25 years to 18 years and total interest paid is Rs 93.3 lakh (compared to the original Rs 1.31 Cr total interest).
• When you make a one-time annual prepayment Rs 2 lakh once a year (in addition to regular monthly EMI of Rs 77,182), then loan tenure reduces from 25 years to 14 years and total interest paid is Rs 73.8 lakh (compared to the original Rs 1.31 Cr total interest).
• When you make a one-time annual prepayment Rs 3 lakh once a year (in addition to regular monthly EMI of Rs 77,182), then loan tenure reduces from 25 years to 13 years and total interest paid is Rs 60.4 lakh (compared to the original Rs 1.31 Cr total interest).
• When you make a one-time annual prepayment Rs 4 lakh once a year (in addition to regular monthly EMI of Rs 77,182), then loan tenure reduces from 25 years to 11 years and total interest paid is Rs 51.5 lakh (compared to the original Rs 1.31 Cr total interest).
• When you make a one-time annual prepayment Rs 5 lakh once a year (in addition to regular monthly EMI of Rs 77,182), then loan tenure reduces from 25 years to 10 years and total interest paid is Rs 44.8 lakh (compared to the original Rs 1.31 Cr total interest).
• When you make a one-time annual prepayment Rs 7.5 lakh once a year (in addition to regular monthly EMI of Rs 77,182), then loan tenure reduces from 25 years to 7 years and total interest paid is Rs 33.8 lakh (compared to the original Rs 1.31 Cr total interest).

That is about when you make your annual prepayment to close the loan. This can be done by using the money received in incentives, annual bonuses, stock option sales, etc.

What are the benefits of prepayment of a home loan? The obvious ones are saving a ton of money on total interest paid. Just go through the above section again to see the quantum of savings. And by the way, if you didn’t know, you can save several lacs by choosing shorter home loan tenure and paying higher EMIs.

Let’s discuss a few other factors related to home loans and the management of EMIs.

Most people would prefer to have a smaller loan burden. And many use up all their savings to reduce the home loan amount. But it’s a mistake from a risk perspective. And people are often too proud of this when they do it – ‘I used all my savings to reduce the loan amount!’ This works well till it does. But in a few cases, where fate has decided something else, this can backfire. You should never use all your savings for downpayment.

It would be best to carefully assess various factors and figure out how much home loan to take? In general, the smaller the loan you take, the better it is. But when buying a house, do not sell everything and use all your savings for the down payment.

While taking a home loan, many people realize that they do not have enough money for even downpayment. At times such people go to the extent of taking personal loan for downpayment. I would say that this approach is best avoided. You should rather focus on how to repay housing loans faster.

And what about prepayment of home loan tax benefits?

The rules are simple. Under Section 80C of Income Tax, you can claim a deduction of up to Rs 1.5 lakh for the principal repayment done in the financial year. While under Section 24B, you can claim a deduction for up to Rs 2 lakh for the payment of interest (You can claim a maximum of Rs. 2 lakhs in case your property is self-occupied. In case you have rented out the property, then you can claim the actual amount of interest accrued on your home loan without any limit).

Now when you are making a prepayment, you are essentially making prepayment towards the principal. That is you are paying extra to reduce the outstanding principal. So if you have already exhausted the Section 80C limit, then making prepayment of the loan will not help much from a tax-saving perspective.

But that is in any case not the main reason for loan prepayment. It is rather about how to quickly pay off the loan by making prepayments.

If you are interested, here are some additional thoughts on managing home loan properly.

That was about home loan prepayment. But these days many lenders provide an interesting facility to borrowers that have a similar impact as that periodic prepayments. A very popular option is SBI Max Gain home loan. The loans that offer this facility give the borrower the option to park surplus money temporarily in their loan accounts. One can put money or take out money from the account whenever they want. And it saves the interest component as the interest part of the EMI is calculated on the difference between the outstanding loan amount and the surplus parked in the account. That way, you can reduce the interest outgo and also have access to liquidity.

By the way, we all know that home loans are the cheapest forms of loans. So if you have a surplus, then you should first try to prepay more expensive loans first. Like credit card dues, personal loans, etc. And having said that, do not use your emergency fund to prepay your home loan. Always ensure that you have a big enough emergency fund at all times.

If you are planning to buy a house due to falling interest rates, then do read: Home Loan rates falling. Should you buy a house now?

That’s all I wanted to say about how to repay the home loan faster. You can call it home loan prepayment tips and home loan prepayment tricks.

Different banks have different home loan prepayment rules and home loan pre-closure charges (if any). You should check with individual lenders to know more about this (like HDFC home loan prepayment, ICICI home loan prepayment, SBI home loan prepayment, etc.)

But obviously, there are can be several different permutations and combinations based on every borrower’s unique circumstance. So it does require a case-to-case analysis to figure out the best possible option for home loan prepayment in India in 2023.