Question 1

How much do I save by prepaying my home loan?

Accepted Answer

Savings depend on how early in the loan you prepay. On a ₹50L home loan at 8.5% for 20 years, prepaying ₹1L per year from Year 1 can save ₹8–10L in total interest and cut 3–4 years from the tenure. The earlier you prepay, the higher the savings — because interest compounds on the outstanding principal.

Question 2

Is annual lump sum prepayment better than increasing EMI?

Accepted Answer

Both strategies reduce interest, but stepping up EMI by even 10% tends to save more interest than a single annual lump sum of equivalent value — because the higher EMI reduces principal every month, not once a year. However, lump sum prepayment suits borrowers with variable income (bonuses, windfall), while EMI step-up works better for those with steady salary growth.

Question 3

Are there prepayment charges on home loans in India?

Accepted Answer

Under RBI's Pre-Payment Charges Directions (effective January 1, 2026), zero prepayment charges apply on all floating-rate home loans for individual borrowers — regardless of loan amount or source of funds. Fixed-rate home loans may still carry charges of 2–3% of outstanding principal. Always check your loan agreement or Key Facts Statement.

Question 4

When is the best time to prepay a home loan?

Accepted Answer

The first one-third of the loan tenure is when prepayment has the highest impact. In the early months, most of your EMI goes toward interest — prepaying principal at this stage eliminates interest charges on that amount for all remaining months. A ₹1L prepayment in Year 2 saves significantly more than the same prepayment in Year 15.

Question 5

Should I reduce EMI or reduce tenure when prepaying?

Accepted Answer

Reducing tenure saves more interest. When you reduce tenure, every remaining EMI still has a higher principal component — paying off the loan faster. Reducing EMI keeps the same tenure but lowers the monthly outgo. Choose tenure reduction if you can afford the same EMI; choose EMI reduction only if cash flow is tight.

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