Additional EMI vs One-time Prepayment: Repaying a home loan can give you and your family peace of mind. It can increase your cash inflow, helping you focus on other financial goals. But when repaying your Rs 60 lakh home loan, which repayment strategy may save more of your money – paying one additional EMI every year or making a one-time prepayment of an amount equal to all additional EMIs? See comparisons between 2 scenarios. 

Fixed vs Floating Rate Home Loan

Home loans can be fixed or floating rate.

In a fixed rate loan, the equated monthly instalment (EMI) is fixed and doesn’t change throughout the loan tenure.

In a floating rate loan, such as one linked to External Benchmark Lending Rate (EBLR) or Marginal Cost of Funds-Based Lending Rate (MCLR), the EMI is not fixed and keeps changing. 

Prepayment options in fixed vs floating rate home loan

In a fixed rate home loan, there is mostly a lock-in period for prepayment, which can be 1 to 3 years.

The lender may also have prepayment charges, plus a borrower needs to check with their lender for prepayment options available. 

In a floating rate loan, there is no lock-in period and no prepayment or foreclosure charges up to a loan of Rs 7.50 crore per borrower, as per Reserve Bank of India (RBI) instructions given in February 2025.      

Prepayment options

A home loan borrower can use the prepayment options such as repaying a percentage of the loan one time, foreclosing the loan after repaying the outstanding loan, paying one additional EMI, or increasing the EMI amount every year.

Such options may vary from lender to lender. A lender may use different parameters for customers based on their credit score and repayment capacity.

Calculations for story

Loan amount- Rs 60 lakh
Interest rate- 9.5 per cent
Tenure- 25 years
Loan started- June 2025
Prepayment made- July 2028
Prepayment amount- Rs 9,43,596
Additional EMI amount- Rs 52,422 
Additional EMI start date- July 2028

Home loan breakup

Principal amount-Rs 60,00,000
Home loan EMI- Rs 52,422
Total interest- Rs 97,26,540
Total amount- Rs 1,57,26,540

Scenario 1 (When you pay additional EMI)

Total additional EMI paid- 18 
Total amount paid in additional EMIs- Rs 9,43,596
Estimated interest saved- Rs 20,38,464
Estimated time saved- 57 months

Scenario 2 (when you make one prepayment of Rs 9,43,596)

We are taking Rs 9,43,596 as the amount since it is also the total amount paid in 18 EMIs.
When you make a prepayment, the lender offers you 2 options – either reduce the EMI amount or keep it the same.
If you reduce the EMI amount, you will save interest, but the loan tenure will remain the same.
However, if you keep the EMI the same, not only will you save heavily on interest, but your loan tenure will also be reduced. 

When you keep EMI same

Estimated interest saved- Rs 40,94,489
Estimated time saved- 96 months 

When you reduce EMI amount

Existing EMI- Rs 52,422
Revised EMI- Rs 43,878
Amount saved in EMI- Rs 8,544
Estimated interest saved on loan- Rs 13,03,502