When you make a part-payment, the lender asks one question: keep the EMI and finish sooner, or keep the term and pay less each month? The answer is almost always the first, and choosing the second is expensive in a way the paperwork never shows you.
That is the whole page, really. Everything below is the detail behind it.
Lowering the EMI feels like the reward for prepaying — the monthly outgo drops, immediately and visibly. Shortening the tenure feels like nothing at all: the same money leaves your account next month, and the benefit is years away. Several lenders apply the EMI reduction unless you say otherwise, so the pleasant option is also the passive one.
But the interest you avoid is a function of how long the balance sits there. Cutting the term removes years of compounding; cutting the EMI removes almost none, because the balance runs down at nearly the same pace it would have anyway.
Say it explicitly, in writing, every time: “reduce the tenure, keep the EMI unchanged.” Then check the revised amortisation schedule they send back.
This is a default, not a law. Take the EMI reduction if the current instalment is genuinely straining the household — a lower fixed commitment that you can reliably meet beats a shorter term you might default on. The arithmetic above assumes you can keep paying ₹46,822 comfortably. If you cannot, it does not apply to you, and there is no shame in the trade.
For a floating-rate home loan to an individual, the RBI’s 2025 Directions bar prepayment and foreclosure charges on loans sanctioned or renewed from 1 January 2026 — no lock-in, and it does not matter where the money came from. Fixed-rate loans are excluded and may still carry one, often around 2% plus GST.
The detail matters more than that summary suggests — the date condition, the fixed-rate carve-out and the lender tiering all have edges. What actually changed in the 2026 rules →
On a typical 20-year home loan the first years’ EMIs are mostly interest, not principal. A prepayment made in year 2 saves far more than the same amount in year 15, because you are wiping out interest that has not been charged yet. Modest, regular part-payments made early beat one large payment made late.
Under Section 24(b), you can deduct up to ₹2 lakh a year of home-loan interest on a self-occupied property (and principal repayment counts toward the ₹1.5 lakh Section 80C limit). Prepaying reduces the interest you pay, which can trim that deduction.
But do the maths before letting the tax tail wag the dog: the interest you save (at, say, 8.5%) almost always outweighs the deduction you forgo (interest × your tax slab). The tax break lowers your effective loan rate — for someone in the 30%+ bracket with interest inside the ₹2 lakh cap, an 8.5% loan behaves more like ~6% after tax — which mainly matters for the prepay-vs-invest decision below, not for whether prepaying is worthwhile at all.
That “inside the ₹2 lakh cap” qualifier is doing a lot of work, and most advice drops it. A ₹50 lakh loan at 9% pays well over double the cap in interest, so prepaying leaves you still claiming the full ₹2 lakh — you lose about half the relief you might have feared, and on a ₹75 lakh loan barely a third. How much of the ₹2 lakh benefit prepaying actually costs you →
Once you've cleared any expensive debt (credit cards, personal loans) and hold a solid emergency fund, compare your home loan's effective after-tax rate to the return you could realistically earn:
Related: Debt avalanche vs snowball — which clears your loans faster
Educational content only — not investment or tax advice. Verify charges and tax rules with your lender and a qualified adviser; rules change.