If you're looking to close your home loan early and save big on interest, prepayment is your most powerful tool. While many borrowers rely on annual bonuses to make lump sum payments, even small and consistent prepayments can significantly reduce the total number of EMIs you pay.
Let’s understand this with an example.
📊 Loan Example
- Loan Amount: ₹50 Lakhs
- Interest Rate: 9% p.a.
- Tenure: 20 years (240 months)
- EMI: ₹44,986
💡 Scenario Analysis
📌 Scenario #1: Pay 10% Extra Monthly (110% of EMI)
- Monthly Payment: ₹49,484
- Loan Closure: 190 months
- Extra EMIs Paid: 19
- EMIs Saved: 50
A manageable 10% increase saves you 4+ years on your loan!
📌 Scenario #2: Pay 20% Extra Monthly (120% of EMI)
- Monthly Payment: ₹53,983
- Loan Closure: 159 months
- Extra EMIs Paid: 32
- EMIs Saved: 81
A bit more aggressive strategy helps you clear the loan over 6.5 years early!
📌 Scenario #3: Pay 1 Extra EMI Annually
- Extra Payment: 1 EMI at the end of each year
- Loan Closure: 199 months
- EMIs Saved: 41
Perfect if you get annual bonuses or hikes.
📌 Scenario #4: Pay 2 Extra EMIs Annually
- Loan Closure: 170 months
- EMIs Saved: 70
Doubles the speed without the pressure of increasing monthly EMI.
💰 Why Do Prepayments Reduce Loan Tenure?
In a reducing balance loan, EMI comprises interest + principal. When you prepay:
- Your principal reduces.
- Interest on next EMI is lower.
- More EMI goes to principal.
- This accelerates future principal payments.
This cascading effect drastically shortens your repayment period and total interest paid.
⚠️ Prepayment Considerations
- Floating Rate Loans: Usually have no prepayment penalty.
- Fixed Rate Loans: May impose heavy penalties. Evaluate before prepaying.
- Personal Loans: Typically fixed rate — do the math carefully.
- Restrictions: Some banks may restrict the frequency of prepayments. Always check.
🏦 What Are Home Saver Loans?
Products like SBI Max Gain offer dual-account structures:
- Loan Account: Reflects your loan balance.
- Excess Account: You can park surplus funds here.
✅ Benefits:
- Interest is calculated on Loan Outstanding - Excess Balance.
- No formal prepayment requests needed.
- You retain liquidity and save on interest simultaneously.
- You can withdraw from the excess account anytime.
At the end of your loan journey, you can use the balance in the excess account to square off the remaining loan — combining flexibility with savings!
🧠 Final Thoughts
You don’t need large sums to be debt-free early. Even 10% extra EMI each month or an extra EMI yearly goes a long way. And if your lender offers a Home Saver Loan, it’s worth considering for unmatched flexibility and interest savings.
Start small, stay consistent, and watch your loan disappear years ahead of schedule!
🧮 Use a Home Loan Prepayment Calculator
Want to try different prepayment strategies with your loan amount and tenure? Use our free EMI & prepayment calculator to check:
- Interest saved
- EMIs reduced
