HDFC Home Loan Part Prepayment - Why is prepaying on 3 July cheaper than 29 June?
I’m a bit confused about the way HDFC Bank calculates interest on part prepayments and would appreciate if anyone who has dealt with this can explain.
My situation:
Home Loan with HDFC
Interest rate: 7.95% (floating)
EMI date: 25th of every month
Planned part prepayment: Rs. 5,00,000
I initially wanted to make the part prepayment on 29 June, but the HDFC representative advised me to wait until 3 July.
According to them:
If I prepay on 29 June, I’ll have to pay around Rs. 3,000 as simple interest.
If I prepay on 3 July, I’ll pay only around Rs. 200 as simple interest because of the way they calculate the EMI cycle and prepayment window.
This is where I’m confused.
My understanding was that if I prepay earlier, my principal reduces earlier, so I should save more interest overall. HDFC is saying that waiting until 3 July is actually better.
Has anyone experienced this with HDFC or another bank?
Is this a standard banking practice?
Is this “simple interest” just interest accrued since the last EMI, or is there some internal accounting rule?
Even if the immediate interest component is lower on 3 July, does delaying the prepayment mean I end up paying more total interest over the life of the loan?
Which option would you choose, and why?
If anyone has an amortization example or works in banking, I’d really appreciate your explanation.