Home loan prepayment: how ₹1 lakh a year can save ₹18 lakh
On a ₹50 lakh, 20-year loan at 8.5%, prepaying ₹1 lakh every year saves about ₹18.6 lakh in interest and 6 years of EMIs.
A home loan's early years are mostly interest. Every rupee you prepay goes straight to the principal, so it saves interest for the rest of the loan.
The example
- Loan: ₹50 lakh at 8.5% for 20 years.
- EMI: about ₹43,391. Total interest over 20 years is about ₹54.1 lakh.
- Prepay ₹1 lakh at the end of every year while keeping the EMI the same: the loan closes in about 14 years, and total interest falls to about ₹35.6 lakh, a saving of roughly ₹18.6 lakh.
Tips
- On floating-rate home loans taken by individuals, banks generally can't charge a prepayment penalty. Confirm with your lender.
- Ask the bank to keep the EMI and cut the tenure. That saves far more interest than cutting the EMI.
- Keep an emergency fund before prepaying.
This article is general information, not personal financial advice. Rules and rates change; check the latest before you act.