What ₹10 lakh prepaid in year 3 saves on a ₹25 lakh home loan
A ₹25 lakh home loan at 8.75% over 20 years runs an EMI of ₹22,093 and ₹28.02 lakh of interest if you simply let it run. Pay an extra ₹10 lakh at the end of year 3 and keep the EMI where it is, and you save ₹17.29 lakh — the loan closes 123 months early. Every rupee you prepaid came back as 1.73 rupees of interest you never had to pay.
- Interest saved
- ₹17.29L
- Loan ends earlier by
- 123 months
- Return on the lump sum
- 1.73×
- Or cut the EMI to
- ₹12,658
by prepaying in year 3
EMI stays at ₹22,093
interest avoided per rupee paid
keeping the original end date
The same ₹10 lakh prepaid at different points
| Prepaid at | Interest saved | Tenure cut by | |
|---|---|---|---|
| Year 1 | ₹20.54L | 138 months | |
| Year 3 | ₹17.29L | 123 months | This page |
| Year 5 | ₹14.26L | 109 months | |
| Year 7 | ₹11.46L | 97 months | |
| Year 10 | ₹7.69L | 80 months |
Timing is the whole game. The earlier the lump lands, the more future interest it deletes.
Two ways to take the benefit
| Route | EMI after | Loan ends | What you gain |
|---|---|---|---|
| Reduce the tenure | ₹22,093 | 123 months early | ₹17.29L of interest saved |
| Reduce the EMI | ₹12,658 | On the original date | ₹9,435 a month back in cashflow |
Cutting the tenure saves more money. Cutting the EMI buys breathing room now. Neither is wrong — they answer different questions.
Why year 3 matters more than the amount
Prepayment does not just reduce your balance — it deletes every future interest charge that balance would have generated. In year 3 of a 20-year loan the remaining balance is still about ₹23.42L, so the interest riding on it is enormous. The same ₹10 lakh paid in the final years would save a fraction of this, because there is barely any interest left to cancel.
Prepay or invest?
Prepaying a home loan at 8.75% is a guaranteed, tax-free return of 8.75% — you cannot lose it in a bad market. An equity fund might beat that over ten years, and might not over three. The honest rule: clear anything above roughly 10% before investing, and treat a cheap home loan as a genuine toss-up that depends on how much certainty you want.
Check the fine print first
On floating-rate loans to individuals, the RBI bars lenders from charging a foreclosure or prepayment penalty — but fixed-rate loans and loans to a business can still carry one. Some lenders also cap the number of part-payments a year or the amount per payment. A quick call before you transfer the money is worth it.
Where FamTally comes in
Record the part-payment once in FamTally and the whole schedule re-cuts itself — new balance, new payoff month, interest saved to date, and the choice between reducing the tenure and reducing the EMI shown side by side. The assistant can run the comparison against investing the same money, using your actual cashflow rather than a generic assumption. Free to use.
Stop doing this in a spreadsheet
FamTally keeps your loans, income, expenses, assets, insurance and goals in one place, forecasts five years ahead, and answers questions about your own numbers. Free, and built for Indian families.
Start freeQuestions people ask
How much does prepaying ₹10 lakh save?
About ₹17.29 lakh in interest, and it ends the loan 123 months early, if you keep paying the same EMI of ₹22,093.
Should I reduce the EMI or the tenure?
Reducing the tenure saves ₹17.29L. Reducing the EMI frees up ₹9,435 a month instead but saves far less overall. Choose the tenure cut unless your monthly cashflow is genuinely tight.
Is there a penalty for prepaying?
Not on floating-rate loans taken by an individual — the RBI does not allow lenders to charge one. Fixed-rate loans may carry a charge, so check your sanction letter.
Is prepaying better than investing the money?
Prepaying earns a certain 8.75%, tax-free. Investing might earn more but might not. At 8.75% the maths is genuinely close, so it comes down to whether you value certainty or upside.