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How much interest do you save by making a ₹5 lakh prepayment on your home loan?

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The Answer
~₹8.5 Lakh
interest saved on ₹50L loan at 8.5% with 20 years remaining

Calculate exact interest savings from a ₹5 lakh lumpsum prepayment on a ₹50 lakh home loan at 8.5%, with 20 years remaining tenure.

By Aditya GuptaAccounting & Finance EducatorLast reviewed May 31, 2026Source: RBI

Why Home Loan Prepayment Maths Are Worth Running

Prepaying ₹5 lakh on a ₹50 lakh/20-year/9% home loan in year 3 saves roughly ₹12-18 lakh in total interest depending on whether you choose to reduce the tenure or the EMI. The tenure-reduction option saves more interest; the EMI-reduction option improves monthly cash flow. Both beat investing the same ₹5 lakh in an FD at 7%.

The question of whether to prepay or invest the surplus elsewhere depends on rate comparison. If your home loan rate is 9% and you can earn 12% post-tax on equity SIPs, investing wins on paper. But factor in: tax deduction on home loan interest (up to ₹2 lakh under old regime makes the effective rate closer to 6-7%), the psychological value of being debt-free, and the certainty of saved interest vs the volatility of equity returns.

RBI rules allow free prepayment on floating-rate home loans — no penalties. Fixed-rate loans typically charge 2-4% prepayment fees. Always confirm rate type with your lender before deciding the cadence.

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Prepayment Savings Calculator

Interest Saved—
Current EMI—
After Prepayment—
Visual Breakdown
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How We Calculated This

Outstanding loan: ₹50,00,000
Prepayment: ₹5,00,000 (10% of outstanding)
Interest rate: 8.5% p.a.
Remaining tenure: 20 years
Prepayment reduces principal immediately; EMI recalculated
No prepayment penalty (floating rate loans exempt under RBI rules)

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Related Calculators

Prepayment Calculator→EMI Calculator→

Frequently Asked Questions

When is the best time to prepay?+
Early in the loan tenure — when the interest component of EMI is highest. In the first 5 years of a 20-year loan, 80%+ of your EMI goes to interest. Prepaying in Year 3 saves far more than prepaying in Year 17.
Should I use bonus/windfall money to prepay?+
Yes, if your home loan rate (8.5%) exceeds your risk-free returns (FD at 7–8%). If you can earn >8.5% consistently in equity MFs, SIP may be better. The comparison depends heavily on your assumed equity returns.
Is there a prepayment penalty on home loans?+
Under RBI guidelines, banks cannot charge prepayment penalties on floating rate home loans for individual borrowers. Fixed rate loans may have 1–4% penalty. Always verify your loan agreement.
How much should I keep as emergency fund before prepaying?+
Always keep 6 months of expenses liquid before making lumpsum prepayments. Prepaying a loan is irreversible — you can’t get the money back if you need it urgently.
Does prepayment affect my CIBIL score?+
Positively — reducing outstanding debt improves your debt utilisation ratio, which can improve your credit score over time. It also reduces your financial risk profile.