Quick answer
Prepaying ₹5 lakh after 2 years on a ₹50 lakh, 20-year loan at 8.5% saves about ₹14,57,301 in interest and ends the loan 3.8 years early if you keep the same EMI. Reducing tenure almost always saves more than reducing EMI.
Key takeaways
- Prepay early. Money paid in years 1–5 saves far more than the same amount in year 15.
- Floating-rate home loans to individuals have no prepayment charges (RBI).
- If your loan rate is below what you can safely earn after tax, investing may beat prepaying. Decide with the numbers.
Reduce tenure vs reduce EMI
After a part-payment, lenders let you either keep the EMI and shorten the tenure, or keep the tenure and lower the EMI. Keeping the EMI clears principal faster, so less interest builds up. Choose lower EMI only if you need the monthly cash flow.
Prepay the loan or invest the money?
Compare your loan rate with the post-tax return you can expect. At 8.5%, prepaying gives a guaranteed, tax-free 8.5% return. Equity may earn more over 10+ years, but with risk. Many people split the money: some to prepayment, some to SIPs. Under the old regime, the Section 24b deduction lowers the effective cost of home loan interest up to ₹2 lakh a year.
Frequently asked questions
Is there a penalty for prepaying a home loan?
Not for floating-rate loans taken by individuals for non-business use. RBI does not allow foreclosure or prepayment charges on these. Fixed-rate loans may carry a charge of 2–4%.
How much should I prepay each year?
Even one extra EMI a year makes a big difference. On a 20-year loan at 8.5%, it cuts about 3 to 4 years off the tenure.
Should I prepay or invest in SIP?
If your loan rate is higher than the post-tax return you can reliably earn, prepay. If you have a long horizon and can take market risk, SIPs may earn more. A mix of both is a sensible middle path.
Sources & methodology
Formulas follow the standard methods used by Indian banks, fund houses and government schemes. Rates and tax rules were checked against official sources on 1 October 2026. Read our methodology.
This calculator gives an estimate for planning purposes. Actual returns, tax and eligibility depend on your situation and on product terms. It is not financial advice.