Accelerated Payment Home Loan – HDFC, SBI, ICICI – Excel Calculator

accelerated payment home loan calculatorThe cut throat competition in the Indian home loan market has forced lenders to offer flexible and customized solutions to the prospective borrowers. It has resulted in the availability of lots of choices to the borrowers and they can plan they are finances as per their needs and requirements.

Flexibility in terms of payment schedules has been the primary objective of new loans schemes. On this blog, we have already covered flexible payment schemes like home Saver loan accounts like SBI Maxgain home loan scheme and step up loans, which allow you to increase your EMI at predetermined stages in the loan period.

What is Accelerated Payment Home Loans Scheme

Accelerated payment home loan schemes offered by most of the lenders in India, allow you to repay your loan faster resulting in lot of savings in terms of interest payment. Accelerated repayment home loans are a good option for salaried class borrowers, who use to get lump-sum payments from their employers in the form of bonus, allowances, increments etc. The banks allow them to deposit the surplus money available with them in the loan account, which is then deducted from the outstanding loan balance to reduce your interest burden.

How Accelerated Payment Schemes are Different from others

Home loan schemes like step up home loan also work on the similar principle of reducing the interest burden by making the additional payments along with the EMI. Please bear in mind that we are discussing here the Type – 1 step up loans. Please refer to our blog post on step up loans to understand the difference between Type I step up loans – whose purpose is to reduce the loan tenure, and Type II step up loans – whose purpose is to increase your loan eligibility.

The primary difference between accelerated payment home loan schemes and Type I step up loans is that the latter is rigid enough to allow increase in your EMI only at pre-determined phases of your loan tenure – typically at the third year and the 10th year of your loan duration. However the accelerated payment schemes allow you the flexibility of making additional payment as and when you are having the surplus money with you.

The accelerated payment schemes are different from home Saver loan accounts like SBI Maxgain Advantage in that the letter allows you to open an additional savings or current account which is linked to your primary loan account. Both of them allow you similar flexibility of parking additional money to reduce your loan tenure and overall interest burden. However in case of home Saver loan accounts, you can easily and withdraw money from the loan account to meet your expense requirements. This is like an overdraft facility available to you which is linked to your loan account. No such facility is available in accelerated payment scheme.

When Accelerated Payment Scheme may not be a Good Option

Please bear in mind that every coin has two faces. The flip side of accelerated repayment home loans is that while making additional payments along with EMI, you are actually forgoing your right to use that money at that moment. The basic premise of exercising this right is that you are not having any investment avenue available to you which can give you better returns than the applicable interest rate on your home loan.

In case, you are in a position to generate better returns, then it is always advisable not to use the accelerated payment scheme and prepay your home loan. You will be better off investing that additional amount elsewhere and generate superior returns.

Accelerated Payment Home Loan Calculator

In the previous post on the review of SBI Maxgain home loan scheme, we have presented an online calculator, which clearly demonstrates the effects of additional payments and withdrawals from your loan account.

The same calculator can be used for understanding the effects of accelerated payments also. The only difference here is that you are not allowed to make withdrawals from the loan account and so you should not enter any negative values in the additional payment field in the same calculator.

You can also download the Excel calculator for accelerated payments from the web link given on the same page.

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Lots of approximations and assumptions have been made while developing the calculators.

Please make your own calculations before making any financial decision.