Bengaluru-based Chartered Accountant Meenal Goel has highlighted the potential impact of making small, regular prepayments on a long-term home loan.
Using an example of a ₹1 crore home loan at an annual interest rate of 9% for a 30-year tenure, Goel explained that the overall repayment could reach approximately ₹2.89 crore. On this calculation, around ₹1.89 crore would represent the interest component over the full repayment period.
She subsequently discussed the effect of increasing the monthly repayment by a relatively small amount. According to the calculation shared by her, an additional ₹4,000 payment each month, equivalent to approximately ₹1,000 per week, could potentially reduce the overall interest cost by around ₹42.2 lakh.
The example illustrates how consistent additional repayments can affect the outstanding principal and, consequently, the interest payable over an extended loan tenure.
The discussion also attracted responses highlighting other factors borrowers may consider when evaluating prepayments, including the time value of money and the potential long-term value of the property. Another participant noted that similar repayment strategies have been followed in the housing finance sector, emphasising that borrowers may need to consider the broader financial implications rather than focusing solely on headline interest savings.
The actual benefit from prepayment would depend on factors including the loan's interest rate, outstanding principal, remaining tenure, repayment structure and the timing and amount of additional payments. CASansaar