Should I reduce EMI or tenure when I prepay my home loan?
Updated · CardKhoj Editorial Team
Short answer
Reducing the tenure saves far more interest. On a ₹50 lakh loan at 8.5% for 20 years, prepaying ₹5 lakh after five years and keeping the same EMI cuts about three years off the loan and saves roughly ₹10.7 lakh in interest. Reducing the EMI instead saves only about ₹3.9 lakh.
Example
Loan: ₹50 lakh at 8.5% for 20 years. EMI ≈ ₹43,391. After 5 years you prepay ₹5 lakh.
| Option | EMI | Remaining tenure | Interest saved |
|---|---|---|---|
| No prepayment | ₹43,391 | 15 years | — |
| Reduce tenure | ₹43,391 | 12 years | ≈ ₹10.7 lakh |
| Reduce EMI | ≈ ₹38,467 | 15 years | ≈ ₹3.9 lakh |
When reducing EMI is better
- Your monthly budget is tight or your income is uncertain.
- You want to free up cash to invest at a higher return than the loan rate.
Tips
Prepay early in the loan, when interest makes up most of each EMI. Floating-rate home loans have no prepayment penalty, so even small annual prepayments — such as a bonus — make a big difference.
This answer is general information, not personalised financial or tax advice. Rules, rates and limits change — confirm with your bank, the RBI or a qualified adviser before making decisions.