Loan Prepayment
See how prepaying your loan can reduce your tenure and save interest.
Savings Impact
Home loans are front-loaded, meaning you pay mostly interest in the first few years. Prepayment is the act of paying off a chunk of your principal early, which drastically reduces your interest burden.
🏠 Reduce Tenure vs Reduce EMI?
Always choose to reduce the tenure. Reducing the EMI gives short-term relief but barely saves any interest. Reducing tenure attacks the compound interest engine directly.
Frequently Asked Questions
Is there a penalty for prepayment?
For Floating Rate Home Loans (Repo Linked), RBI has mandated <strong>Zero Penalty</strong> for individual borrowers. Fixed rate loans may have a penalty.
When is the best time to prepay?
The earlier, the better. Prepaying in the first 5-7 years of a 20-year loan has the maximum impact because the interest component is highest then.
Does prepayment affect tax benefits?
Yes. If you pay off your loan early, you stop claiming tax deductions under Section 24(b) and 80C sooner. However, the interest saved usually outweighs the tax saved.
Can I prepay using an annual bonus?
Absolutely. Using your annual bonus to make a bullet payment towards your home loan is one of the best debt-free strategies.
Does prepayment improve CIBIL score?
Yes, reducing your outstanding debt burden ratio positively impacts your credit score over time.