- Early prepayments save the most because interest is highest in the first years.
- Keeping the EMI and shortening the tenure usually saves more total interest.
- Keep an emergency fund before prepaying a large amount.
Every EMI contains interest and principal. In the early years, most of the EMI is interest. A lump-sum prepayment cuts the principal, so all future interest falls.
A worked example
Take a home loan of ₹30 lakh at 9% for 20 years. The EMI is about ₹26,992. After 3 years you pay a lump sum of ₹2 lakh. You have two choices:
Option A: keep the EMI, shorten the tenure
The remaining 204 months fall to roughly 174, so you finish about two and a half years earlier. Total interest saved is about ₹6.2 lakh.
Option B: keep the tenure, reduce the EMI
The EMI falls by about ₹1,900 to roughly ₹25,074, and you save about ₹1.9 lakh in interest.
Both are good, but Option A saves about three times more. Option B helps if you need more monthly cash flow. Try your own numbers with the prepayment calculator.
Before you prepay
- Keep 3 to 6 months of expenses aside first: see the emergency fund guide.
- Check whether your loan is floating or fixed. Floating loans for individuals generally allow free part-prepayment; fixed ones may charge a fee.
- Clear more expensive debt, such as credit card dues, before prepaying a home loan.
- Ask the lender in writing to apply the payment to the principal and to keep the EMI unchanged if you want a shorter tenure. Some lenders lower the EMI by default.
Learn what to check before signing in the home loan checklist.
This article is for general information only and is not financial, legal or tax advice. Interest rates, fees and rules change, so confirm current terms with the lender or the regulator before you decide. Examples use illustrative figures. Last reviewed: October 2026.
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