Reviewed October 2026
How home loan prepayment saves you money
In the early years of a home loan, most of each EMI goes to interest. Every rupee you prepay goes straight to the principal, so it stops interest from accruing on that amount for the rest of the loan.
RBI rules don't allow banks to charge a prepayment penalty on floating-rate home loans taken by individuals, so prepaying is usually free.
Worked example
A ₹50 lakh loan at 8.5% for 20 years has an EMI of ₹43,391 and total interest of about ₹54.1 lakh.
Paying just ₹5,000 extra every month from the start saves about ₹13.9 lakh of interest and closes the loan 53 months (4 years 5 months) early.
A one-time prepayment of ₹5 lakh in month 24 saves about ₹14.6 lakh of interest and 45 months.
Reduce EMI or reduce tenure?
When you prepay, the bank asks whether to lower your EMI or shorten your tenure. Keeping the EMI and shortening the tenure saves the most interest; that's what this calculator assumes.
Prepay or invest?
- Prepaying earns a guaranteed, tax-free 'return' equal to your loan rate.
- In the old regime, home loan interest up to ₹2 lakh a year is deductible, which lowers your effective loan rate.
- If you expect investments to earn well above your loan rate after tax, a mix of both is common. Keep an emergency fund before prepaying.
Frequently asked questions
Is there a penalty for prepaying a home loan?
Not for floating-rate home loans to individuals — RBI prohibits it. Fixed-rate loans may carry a charge; check your agreement.
When is the best time to prepay?
As early as possible, because interest makes up most of the EMI in the early years.
Will prepayment reduce my tax benefit?
In the old regime, a lower outstanding balance means less interest to claim. Most people still save more in interest than they lose in tax benefit.