See exactly how much interest you save with a lump-sum prepayment and by how many years your loan tenure reduces. Covers reduce-tenure and reduce-EMI strategies.
A ₹5L prepayment in year 5 of a ₹50L loan saves more in interest than ₹5L in a fixed deposit. We'll show you the numbers.
When you make a partial prepayment on your home loan, it directly reduces your principal outstanding. Since all future interest is calculated on the reducing balance, a lower principal means less interest in every future EMI. The earlier you prepay, the greater the savings — because interest forms a larger portion of early EMIs.
Under RBI guidelines, banks cannot charge a prepayment penalty on floating rate home loans. Only fixed rate home loans may carry a 2–3% prepayment fee. Most home loans in India are on floating rates, so prepayment is effectively free.
| Strategy | Interest Saved | Monthly Benefit | Best For |
|---|---|---|---|
| Reduce Tenure | Higher | None (same EMI) | People who can maintain current EMI and want to be debt-free sooner |
| Reduce EMI | Lower | Immediate cash flow relief | People facing cash flow pressure or expecting income reduction |
Financial advisors generally recommend reducing tenure because the interest saved is significantly higher. However, if your income is variable or you expect expenses to increase (children's education, retirement), reducing EMI gives more flexibility.
If your home loan rate is 8.5%, any investment returning less than 8.5% after tax means prepayment is better. Fixed deposits currently return 6.5–7.5%, which is lower than your loan rate — making prepayment the superior choice. Equity markets historically return 12–15%, but with significantly higher risk and tax implications.