One ₹2 lakh payment, ₹7.86 lakh less interest
Priya owes ₹40 lakh on her home loan at 8.5%, with 20 years to go. At an EMI of ₹34,713, she’ll pay about ₹43.31 lakh in interest, more than the loan itself.
Say she pays ₹2 lakh into the loan and keeps the same EMI. She saves ₹7.86 lakh in interest, and the loan ends 2 years 4 months sooner. It all goes to principal, and interest is charged on what’s left:
Interest for the month = balance × rate ÷ 1200
Keep the EMI or lower it?
Ask for a lower EMI instead and it drops to ₹32,977, which is ₹1,736 less. But the saving shrinks to ₹2.17 lakh, because the smaller loan still runs the full 20 years. That’s why most banks keep the EMI and cut the tenure unless you ask otherwise. It saves you the most, and that EMI already fits your income. Lower it only if money is genuinely tight.
A slice of the bonus, every year
Rohan has the same loan and adds ₹1 lakh from his Diwali bonus at the end of every year. The loan closes in about 13 years, not 20, saving about ₹16.95 lakh in interest. At ₹2 lakh a year, it’s done in 10 years and saves about ₹23.81 lakh.
Early payments do the most
Of the ₹4.17 lakh Priya pays in EMIs in year 1, about ₹3.37 lakh is interest. So timing matters a lot:
| ₹2 lakh paid | Loan left | Interest saved |
|---|---|---|
| Now | ₹40 lakh, 20 years | ₹7.86 lakh |
| After 5 years | ₹35.25 lakh, 15 years | ₹4.68 lakh |
| After 10 years | ₹28 lakh, 10 years | ₹2.47 lakh |
| After 15 years | ₹16.92 lakh, 5 years | ₹97,336 |
Prepay or invest?
A part payment earns a sure 8.5%, the loan rate. An equity SIP may earn more over 10 years or longer, but returns are not guaranteed. In the old tax regime, interest up to ₹2 lakh a year on a self-occupied house is deductible. Even after her part payment, Priya’s interest stays above ₹2 lakh for 10 years, so her deduction doesn’t shrink. The new regime has none. Compare on the income tax calculator. Many people build an emergency fund first, then split spare money between the two.
RBI rules don’t let banks charge for part payment of a floating-rate home loan taken by an individual. Fixed-rate loans may have one.
Frequently asked questions
Is there a charge for part payment of a home loan?
Not on a floating-rate home loan taken by an individual. RBI rules don’t allow banks to charge a fee for part payment or full closure of such loans. Fixed-rate home loans may carry a charge, so check your loan agreement before you pay.
Should I reduce EMI or tenure after a part payment?
Reducing the tenure saves more. On a ₹40 lakh loan at 8.5% with 20 years left, a ₹2 lakh part payment saves about ₹7.86 lakh if you keep the EMI, but only ₹2.17 lakh if you lower the EMI to ₹32,977. Lower the EMI only if your budget is tight.
When is the best time to prepay a home loan?
As early as you can, because in the first years most of the EMI goes to interest. On a ₹40 lakh loan at 8.5% for 20 years, ₹2 lakh paid now saves about ₹7.86 lakh. The same ₹2 lakh paid after 10 years saves about ₹2.47 lakh.
Should I prepay my home loan or invest in a SIP?
A part payment gives a sure saving equal to your loan rate. An equity SIP may earn more over 10 years or longer, but its returns are not guaranteed. Many people keep an emergency fund first, then split spare money between part payments and investing, based on how much risk they can take.
Does prepaying reduce my home loan tax benefit?
Only in the old tax regime, and only once your yearly interest falls below ₹2 lakh, the limit for a self-occupied house. In the early years of a big loan the interest is usually above that, so you lose nothing. The new regime gives no deduction for self-occupied home loan interest.
Calculator maintained by Manoj. Last reviewed: 19-10-2026. Rates and rules are checked against official sources. Tell us if something has changed. Contact
