Wealth Hack of the Day: Save Rs 18.31 lakh on Rs 50 lakh home loan with this prepayment trick

When you take a home for long durations such as 20, 25 and 30 years, there are high chances that you will pay more interest than the principal amount. In the initial years of the loan, your interest component is quite higher than your principal component. But if you use a prepayment trick, your Rs 50 lakh home loan taken at an 8.5% fixed interest rate for 25 years will be repaid in less than 20 years. Not only that you will also save approximately Rs 18.31 lakh in interest.
Let’s find out what that prepayment trick is.

Rs 50 lakh home loan break-up
Loan amount- Rs 50 lakh

Tenure- 25 years
Interest rate- 8.5%
EMI- Rs 40,261
Interest amount- Rs 70.78 lakh
Total amount- Rs 1.21 crore (approximately)

You can see here that the interest amount is nearly Rs 21 lakh more than the principal amount.

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How to save lakhs in interest and years in tenure on Rs 50 lakh home loan

If you start prepaying one extra equated monthly instalment (EMI) from the second year of your home loan, you can save approximately Rs 18.31 lakh in interest and nearly 5.6 years in tenure on your home loan. Hence, your home loan break up will be as follows-
Loan amount= Rs 50 lakh (taken in January 2026)
Pay one extra EMI of Rs 40,261 every year starting with the first such prepayment in February 2027
Given that the interest rate of the loan remains the same thoroughly, here’s is the interest amount and tenure you will save on your loan-
Interest saved- Rs 18.31 lakh
Tenure saved- 65 months (5 years and 5 months)

Frequently asked questions (FAQs) answered by Atul Monga, CEO and co-founder, BASIC Home Loan

When is the best time to prepay a home loan?

The most effective time to prepay a home loan is during the early years of the tenure when the larger portion of the EMI goes toward interest. Borrowers can use their bonus or salary increments to make lump sum payments and gradually increase their EMI amount in line with income growth.

How does prepayment help in fixed EMI, repo rate-linked and MCLR home loans?

Prepayment helps across structures because it reduces the outstanding principal. However, the economics and ease differ. For floating rate loans (repo-linked or MCLR-linked), part-prepayment is usually allowed without penalty for individual borrowers, making it straightforward. For fixed-rate loans, lenders may levy prepayment charges or have conditions, so it is important to check the loan terms before planning a fixed annual prepayment.
Repo-linked loans also benefit from early principal reduction; the exact saving can vary because rates and EMI/tenure resets may happen faster with policy-rate changes. The underlying principle remains the same: prepaying earlier typically yields higher interest savings.

Do you need to inform your lender if you want to prepay your home loan?

You can prepay an additional EMI annually through netbanking, by visiting the branch, or by giving standing instructions. Make sure the amount is adjusted towards principal and tenure, not lowering the EMI amount.

While most banks and NBFCs allow part-prepayment on floating-rate loans without any penalty, automatic annual prepayment of EMI may not be standard and often require manual actions.

Is there any prepayment strategy that most borrowers can follow in their home loan prepayment?

Prepayment should be done without compromising financial stability. A practical sequence is: build a 6-month emergency fund, ensure adequate term and health insurance, continue essential long-term investments, and then allocate annual surplus to prepayment. Using bonuses, increments, and tax refunds for part-prepayment is often smoother than disturbing monthly cash flows. Reviewing discretionary spends periodically can create room for predictable annual prepayments.

Calculator used: Fisdom