What is home loan prepayment?
Prepayment (or part-payment) means paying back part of your loan before it is due, over and above your EMIs. The extra money goes straight to reducing the principal, so less interest is charged for the rest of the loan. It is one of the most effective ways to save money on a home loan, especially in the early years.
How to use the calculator
- Enter your loan amount, interest rate and tenure.
- Add a one-time part-payment and when you plan to make it, and/or an extra amount every month.
- Choose whether the bank should reduce the tenure (EMI stays the same) or reduce the EMI (end date stays the same).
How much can you save?
₹50 lakh home loan at 8.5% for 20 years (EMI ₹43,391, total interest ₹54.1 lakh):
| Prepayment | Interest saved | Loan ends earlier by |
|---|---|---|
| ₹2 lakh after 2 years | ₹6,58,981 | 1 year 7 months |
| ₹5 lakh after 2 years | ₹14,57,301 | 3 years 9 months |
| ₹5,000 extra every month | ₹13,89,250 | 4 years 5 months |
| ₹5 lakh after 2 years + ₹5,000 a month | ₹23,10,957 | 6 years 10 months |
Paying just ₹5,000 more each month (about 12% of the EMI) saves almost ₹14 lakh. Small, regular extra payments are as powerful as a large one-time amount.
Reduce tenure vs reduce EMI
For the same ₹5 lakh part-payment after 2 years:
- Reduce tenure: the EMI stays ₹43,391 and the loan ends 3 years 9 months early. Interest saved: ₹14.6 lakh.
- Reduce EMI: the EMI drops to about ₹38,864 and the loan runs the full 20 years. Interest saved: ₹4.8 lakh.
If you can afford the current EMI, reducing the tenure is almost always the better choice.
Tips before you prepay
- Keep an emergency fund of 6 months' expenses first. Money prepaid cannot easily be taken back.
- Prepay high-interest loans first: personal loans and credit cards before a home loan.
- Ask the bank in writing to apply the payment to principal and choose tenure or EMI reduction.
- Use bonuses and salary raises; see what reaches your account with the salary calculator.
Check your current EMI and schedule with the EMI calculator, and see how much you could borrow with the loan eligibility calculator.
Frequently asked questions
Is it better to reduce the tenure or the EMI after a prepayment?
Reducing the tenure saves far more interest, because the higher EMI keeps paying down the principal faster. On a ₹50 lakh loan at 8.5% for 20 years, a ₹5 lakh part-payment after 2 years saves about ₹14.6 lakh with a shorter tenure, but only about ₹4.8 lakh if you lower the EMI instead. Reduce the EMI only if your monthly budget needs the relief.
Is there a penalty for prepaying a home loan?
Banks and housing finance companies cannot charge prepayment or foreclosure charges on floating-rate loans taken by individuals for non-business purposes, under RBI rules. Fixed-rate loans may carry a charge, usually 2–4% of the amount prepaid.
When is the best time to prepay?
Earlier is better. In the first years most of each EMI goes to interest, so every rupee prepaid then removes more future interest than the same rupee paid later.
Should I prepay my home loan or invest the money?
Prepaying gives a guaranteed, tax-free return equal to your loan rate. If your loan costs 8.5% and you are in the old tax regime claiming interest deductions, the effective cost is lower. Investing in equity may earn more over the long run but with risk. Many people split surplus money between both.
Does prepayment affect my tax benefit?
Under the old regime, home loan interest on a self-occupied house is deductible up to ₹2 lakh a year and principal counts towards the ₹1.5 lakh 80C limit. Prepaying lowers future interest, so the deduction may fall, but the interest saved is usually worth far more than the tax saved on it.
Sources
Last updated 19 September 2026. Results are estimates for planning only and are not investment, tax or legal advice. See our disclaimer.