Home Loan Prepayment: Reduce EMI or Tenure? Which Saves More?
Prepaying ₹3 lakh on a ₹40 lakh loan saves ₹10,13,090 of interest if you cut the tenure, but only ₹3,05,645 if you cut the EMI.
By the TurantTools team · Updated 15 October 2026 · 5 min read
A bonus landed, or an FD matured, and you're thinking of putting it into your home loan. Good call. But the bank will ask one question: “Reduce the EMI or the tenure?” Most people choose the lower EMI because it feels like monthly relief. Let's see what that choice costs, in numbers.
Our example
Outstanding loan ₹40,00,000, interest 8.5%, 20 years left. The EMI is ₹34,713. After one year you prepay ₹3,00,000.
| Keep EMI, cut tenure | Keep tenure, cut EMI | |
|---|---|---|
| New EMI | ₹34,713 | ₹32,057 |
| Loan ends in | 16 yrs 11 mo | 20 yrs |
| Interest saved | ₹10,13,090 | ₹3,05,645 |
Interest saved
Cutting the tenure saves ₹10,13,090 of interest and ends the loan 3 yrs 1 mo sooner. Cutting the EMI saves only ₹3,05,645. Same ₹3,00,000, a difference of ₹7,07,445.
Do it early: time is the biggest lever
Early in a loan most of each EMI is interest, so early prepayments save the most. The same ₹3,00,000 paid in year one saves ₹10,13,090; paid in year ten it saves only ₹3,56,433.
A little extra every month works wonders too
| Extra each month | Interest saved | Loan ends earlier by |
|---|---|---|
| ₹2,000 | ₹6,46,989 | 2 yrs 6 mo |
| ₹5,000 | ₹12,98,954 | 5 yrs 2 mo |
| ₹10,000 | ₹19,69,555 | 8 yrs 1 mo |
Check these before you prepay
- Under RBI rules there's no prepayment charge on floating-rate home loans taken by individuals. Fixed-rate loans may carry a fee.
- Keep an emergency fund (at least 6 months of expenses) aside first.
- In the old regime you can deduct up to ₹2 lakh of home loan interest; prepaying cuts the interest, so the deduction shrinks too. The overall saving is usually still bigger.