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Power of Additional Home Loan EMI: When you take a home loan, the lender checks your creditworthiness and sanctions you the loan. We adjust the duration of the loan and the amount of the equated monthly instalment (EMI) according to our earning capacity. But as our income increases, we may come across many chances where we can partly prepay our loan or may foreclose it altogether. The part prepayment can be in the form of paying an additional EMI every year, increasing the EMI amount, paying a lump sum amount, or paying in yearly installments.

Prepayment conditions may vary from bank to bank, depending on your contract with the lender or the type of loan you have taken.

But if you make a prepayment, not only can you save money on your loan, but you may also save time on repayment.

Know how it may work out and how you may save over Rs 25 lakh and nearly 5 years on a Rs 75 lakh, 25-year home loan.

Your home loan can be fixed interest rate or floating rate.

Fixed rate loans provide the same rate from the beginning till the end.

Floating rate loans are linked to Marginal Cost of Funds based Lending Rate (MCLR), or External Benchmark-Lending rate, in simple terms the repo rate.

In fixed interest rate loans, banks have a prepayment lock-in period of 1-3 years.

The lender may also impose prepayment charges.

However, for floating rate loans, there is no such lock-in period.

At the same time, as per the Reserve Bank of India (RBI) guidelines, lenders can't charge prepayment or foreclosure.

In this option, a borrower can foreclose their loan before its schedule.

They may either make a prepayment from their own savings or opt for a balance transfer, where they shift the loan to a lender offering a lower rate than the existing lender. 

In this, the borrowers repay a portion of their outstanding loan.

It saves their interest amount and may also shorten their loan duration.

A borrower gets the option to either reduce their EMI or keep it the same.

Home loan- Rs 75,00,000 

Interest rate- 9.5 per cent

Tenure- 25 years

Estimated EMI- Rs 65,527  

Estimated interest- Rs 1,21,58,175  

Estimated repayment amount- Rs 1,96,58,175

Estimated processing fee- Rs 37,500 (0.5 per cent of the principal)  

Loan start- July 2025

Loan end- July 2050 

Paying one additional EMI every year

First additional EMI payment- August 2028

Last additional EMI payment- August 2045

Estimated interest saved- Rs 25,48,066

Estimated duration saved- 4 years and 9 months 

(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)

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