How Paying ₹1 Lakh Extra Every Year Can Reduce Your Home Loan Tenure by More Than 15 Years and Save Over ₹35 Lakh

A home loan is one of the biggest financial commitments for most borrowers. On a long-tenure loan, a significant portion of the total repayment goes towards interest, increasing the overall cost of borrowing. 

One way to reduce this cost is by making regular part-prepayments. You can use the EMI Calculator to estimate how additional payments may affect your loan tenure and total interest. The illustration below shows the impact of paying ₹1 lakh extra every year while choosing to keep the EMI unchanged and reduce the loan tenure. 

Home Loan Without Any Prepayment 

Without making any additional payments, the borrower continues to pay the EMI for the full 30-year tenure. 

In this scenario, the borrower pays ₹61.88 lakh as interest on a loan of ₹35 lakh, highlighting how interest can substantially increase the total repayment over a long tenure. 

Read More: What Happens If You Pay 1 Extra Home Loan EMI Every Year? 

What Happens If You Pay ₹1 Lakh Extra Every Year? 

If the borrower makes an annual prepayment of ₹1 lakh and chooses to keep the EMI unchanged, the loan is repaid much faster because every prepayment directly reduces the outstanding principal. 

By prepaying ₹1 lakh every year and continuing with the same EMI, you can repay your home loan approximately 15 years and 2 months earlier. In this illustration, the strategy also reduces the total interest outgo by ₹35,10,117, bringing down the overall repayment by more than ₹35 lakh.  

Why Keeping Your EMI Unchanged Can Save More 

After making a part-prepayment, lenders generally offer two options: 

For borrowers looking to reduce the overall cost of borrowing, keeping the EMI unchanged is generally the more effective option. Since interest is calculated on the outstanding principal, reducing the principal earlier lowers future interest charges and accelerates loan repayment. 

How Can You Plan an Annual Prepayment? 

Borrowers who wish to make a yearly prepayment may consider setting aside funds gradually during the year. For instance, saving around ₹8,333 per month can help accumulate ₹1 lakh for an annual part-prepayment. 

Before making any prepayment, borrowers should also review their lender's terms and conditions, including any applicable charges or minimum prepayment requirements. 

Conclusion 

Making an annual prepayment of ₹1 lakh while continuing with the same monthly EMI can significantly reduce both your home loan tenure and the total interest payable. In this illustration, the strategy reduces the repayment period by more than 15 years and lowers the interest outgo by over ₹35 lakh.  

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