Home Loan Prepayment: How Much Can You Save?
How part-prepayments cut home loan interest and tenure, with a worked example for a ₹50 lakh loan.
On a long home loan, interest is the larger part of what you repay. Prepaying even a small amount early can save a lot, because it reduces the principal on which every later month's interest is charged. Use the EMI calculator to see your baseline.
Baseline example
A ₹50 lakh loan at 8.75% for 20 years has an EMI of about ₹44,186. Total interest over the full term is roughly ₹56 lakh.
Option 1: one lump-sum prepayment
Suppose after 5 years you pay an extra ₹5 lakh and keep the same EMI. The loan then ends after about 12 more years instead of 15. The interest you pay from that point falls from about ₹35 lakh to about ₹24 lakh, a saving of roughly ₹11 lakh.
Option 2: one extra EMI every year
Paying one additional EMI a year from the start closes the loan in about 16 years and 8 months instead of 20, and cuts total interest from about ₹56 lakh to about ₹45 lakh, a saving of roughly ₹11 lakh.
These results assume a fixed rate for the whole term. Floating-rate loans change with the benchmark rate, so actual numbers will differ.
Prepay or invest?
Prepaying gives a guaranteed return equal to your loan rate, adjusted for any tax benefit you lose on interest. Investing can earn more but with risk. A balanced approach is to keep an emergency fund, invest for long-term goals through a SIP, and send surplus cash to the loan, especially if the rate is high.
Practical tips
- Choose "reduce tenure" if you can afford the EMI; "reduce EMI" saves less interest.
- For individual floating-rate loans, RBI rules prohibit prepayment penalties; check your sanction letter for fixed-rate loans.
- Prepay early in the term, when most of each EMI is interest.
- Ask the lender for an updated amortisation schedule after each prepayment.
Figures are illustrative and rounded. Confirm with your lender's schedule.
Frequently asked questions
Is there a penalty for prepaying a home loan?
For individual borrowers on floating-rate loans, RBI rules do not allow prepayment charges. Fixed-rate loans may differ, so check your agreement.
Should I reduce tenure or EMI after prepaying?
Reducing tenure saves more interest; reducing EMI eases cash flow.
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Last reviewed: October 2026. General education, not financial advice.