Loans
Home Loan Prepayment: How Much It Saves, and Whether to Cut EMI or Tenure
A worked ₹5 lakh prepayment on a ₹50 lakh loan, tenure vs EMI reduction, yearly prepayments, and whether to prepay or invest.
By Team Vind · Updated · 5 min read
Got a bonus or some savings and wondering whether to pay down your home loan? In the early years most of each EMI is interest, so a part-prepayment can save a surprising amount. Here's how much, which option to pick afterwards, and when investing the money might be better.
How much a prepayment saves
Take a ₹50,00,000 loan at 8.5% for 20 years. The EMI is ₹43,391. After 3 years you prepay ₹5,00,000:
| No prepayment | Keep EMI, shorten loan | Keep end date, lower EMI | |
|---|---|---|---|
| Monthly EMI | ₹43,391 | ₹43,391 | ₹38,750 |
| Time left | 17 years 0 months | 13 years 7 months | 17 years 0 months |
| Interest still to pay | ₹41,77,497 | ₹28,57,858 | ₹37,30,639 |
| Interest saved | – | ₹13,19,639 | ₹4,46,858 |
Keeping the EMI and shortening the loan saves ₹13,19,639 and finishes 3 years 5 months early, far more than lowering the EMI, which saves ₹4,46,858.
Try it: Loan Prepayment Calculator
Your Prepayment Savings
Before and after prepaying
| Without prepayment | With prepayment | |
|---|---|---|
| Outstanding balance | ₹46,74,300 | ₹41,74,300 |
| Monthly EMI | ₹43,391 | ₹43,391 |
| EMIs left | 204 | 163 |
| Interest still to pay | ₹41,77,497 | ₹28,57,858 |
Reduce the tenure or the EMI?
- Reduce the tenure if you can comfortably afford the current EMI. It saves the most interest. Many banks do this by default.
- Reduce the EMI if money is tight each month, or your income is uncertain. You save less, but gain breathing room.
Small, regular prepayments work too
Instead of one lump sum, prepay ₹1 lakh at the end of every year from year 4. The loan ends after 15 years 3 months instead of 20 years, and the interest from year 4 falls from ₹41,77,497 to ₹28,95,787. Even one extra EMI a year makes a big dent.
Prepay or invest?
Prepaying earns a guaranteed return equal to your loan rate, 8.5% here, with no risk. Investing could earn more over long periods, but isn't guaranteed. A sensible order:
- Keep an emergency fund of 6 months' expenses first.
- Clear costlier debt (credit cards, personal loans) before the home loan.
- In the old tax regime, interest up to ₹2 lakh a year on a self-occupied home is deductible, so the effective rate is lower; factor that in.
- Prepay early in the loan, when the interest share is highest. In the last few years, prepaying saves little.
New to how EMIs work? Read how EMI is calculated.
Frequently asked questions
Is it better to reduce EMI or tenure after prepayment?
Reducing the tenure saves much more interest. Reduce the EMI only if you need lower monthly payments.
Is there a penalty for prepaying a home loan?
Not on floating-rate loans taken by individuals, under RBI rules. Fixed-rate loans may carry a charge; check your agreement.
When is the best time to prepay?
As early as possible. In the first years most of each EMI is interest, so each rupee prepaid saves the most.
Should I prepay or invest in mutual funds?
Prepaying gives a guaranteed return equal to your loan rate. Investing may earn more over the long term but carries risk. Many people split the money between both.
These results are estimates for planning only, not financial, investment or tax advice. Rates and rules change, and your bank, fund house or employer may calculate slightly differently. Check with them or a qualified adviser before you decide.
Sources
- Reserve Bank of India: prepayment charges on floating-rate loans
- Income Tax Department: deduction for interest on a housing loan (self-occupied property)
Last reviewed: 10 October 2026