Can Prepayments Help You Save Lakhs on Your Home Loan?

For most homebuyers, a housing loan is the biggest financial commitment they take on, often lasting 15–30 years. While EMIs can make homeownership manageable, the long tenure can mean paying a substantial amount as interest over time, often equaling or exceeding the principal. This is where prepayments (paying extra toward your loan apart from EMIs) can help you save lakhs in interest and close your loan much faster.

How Do Prepayments Work?

A prepayment is any extra payment you make toward your home loan principal, either as a lump sum (partial prepayment) or by increasing your EMI amount. Since interest is calculated on the outstanding balance, every rupee you pay in advance reduces the interest burden significantly over the loan tenure.

Scenario 1: ₹50 Lakh Home Loan (20-Year Tenure)

Let’s assume you take a ₹50 lakh home loan at an 8% annual interest rate for 20 years. Your EMI would be around ₹41,822, and your total interest outgo over 20 years would be about ₹50.3 lakh.

If you prepay ₹5 lakh in the 5th year, your interest outgo reduces by roughly ₹10.2 lakh, and your loan tenure shortens by about 3 years.

Scenario 2: ₹1.2 Crore Home Loan (25-Year Tenure)

For a ₹1.2 crore loan at 8% over 25 years, your EMI would be about ₹92,623, and you’d pay a staggering ₹1.78 crore in interest.

Prepaying ₹15 lakh in the 7th year can save nearly ₹40 lakh in interest and reduce the tenure by almost 6 years.

While these scenarios give a broad view, your actual savings depend on your loan amount, tenure, interest rate, and timing of prepayments. Using a EMI calculator, you can easily check how much you’ll save by prepaying a specific amount at different times. Many calculators also let you compare whether it’s better to increase your EMI or make lump-sum payments.

Also Read: EMI Planning: What Should Be Your EMI If You Earn ₹50,000 Per Month?

Conclusion

Prepaying your home loan can significantly reduce your interest burden, save you lakhs, and help you achieve financial freedom years earlier. However, banks may levy a prepayment or foreclosure fee on home loans, especially for fixed-rate loans. These charges can vary by lender and loan terms, so always check before prepaying. By planning strategically and using tools like an EMI or home loan calculator, you can make informed decisions and maximise your savings.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.