How much interest do you save by making a ₹5 lakh prepayment on your home loan?
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Calculate exact interest savings from a ₹5 lakh lumpsum prepayment on a ₹50 lakh home loan at 8.5%, with 20 years remaining tenure.
Why Home Loan Prepayment Maths Are Worth Running
Prepaying ₹5 lakh on a ₹50 lakh home loan at 8.5% with 20 years remaining saves about ₹5.4 lakh in total interest if you keep the 20-year tenure and take the lower EMI (₹39,052 instead of ₹43,391), and about ₹17.6 lakh if you keep paying ₹43,391 and let the tenure shorten to roughly 15 years 8 months. 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.