Save money3 min read · Updated 17 October 2026
Part prepayment on a home loan: reduce EMI or reduce tenure?
Which saves more when you part-prepay your home loan: a lower EMI or a shorter tenure? A worked example, the rule to remember and how to tell your lender.
The idea in one line
A prepayment goes straight against your principal. Less principal means less interest every month after. You can use that saving in two ways: keep paying the same EMI and finish earlier, or keep the same end date and pay a smaller EMI.
A worked example
You owe ₹40,00,000 at 8.5% with 15 years (180 months) left. Your EMI is ₹39,390. You prepay ₹2,00,000.
| No prepayment | Keep EMI (shorter loan) | Lower EMI (same end date) | |
|---|---|---|---|
| EMI | ₹39,390 | ₹39,390 | ₹37,420 |
| Time left | 15 years | 13 years 7 months | 15 years |
| Interest still to pay | ₹30,90,125 | ₹26,17,312 | ₹29,35,619 |
| Interest saved | — | ₹4,72,813 | ₹1,54,506 |
The shorter loan saves about ₹3,18,306 more, because every instalment keeps clearing principal at the old speed.
When to lower the EMI instead
- Your monthly budget is tight and the cash flow matters more than the saving.
- You want room to build an emergency fund or to invest.
- You expect a rate rise and want a smaller EMI as a cushion. See What if rates rise?.
You can also start with a lower EMI and keep paying the old amount. That gives the same result as keeping the EMI, with the freedom to stop.
Should you prepay or invest the money?
The loan gives you a guaranteed return equal to your interest rate, for example 8.5%, with no tax on the saving. An investment must beat that after tax and risk to be better. The Prepay or invest calculator compares the two.
How to prepay
- Ask your lender for the outstanding balance and the minimum part-payment amount. Some set a floor such as a multiple of the EMI.
- Pay online or at the branch.
- Write on the request: "Keep my EMI unchanged and reduce my tenure."
- Ask for an updated repayment schedule and check the new end date.
The Pay off sooner tool shows your new end date for any amount, including a yearly step-up.
Common questions
Is it better to reduce EMI or tenure after part prepayment?
Reducing tenure saves more total interest because you keep paying the same EMI. Reducing the EMI helps monthly cash flow. If you can afford the old EMI, keep it.
Do banks charge a penalty for part prepayment of a home loan?
Not on floating-rate home loans to individuals. RBI bars lenders from charging a pre-payment penalty on them. Fixed-rate loans can carry a charge, so check your agreement.
How much should I prepay at one time?
Any amount your lender accepts. Some set a minimum, such as one or more EMIs. Early in the loan each rupee prepaid saves the most.