Key Takeaway
Prepaying ₹1 lakh in the first 3 years of a ₹30 lakh home loan at 8.5% saves approximately ₹2.8 lakh in total interest. Early prepayment is dramatically more effective than late prepayment due to front-loaded interest.
Loan Balance Projection (Principal Outstanding)
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Frequently Asked Questions
Should I prepay my home loan or invest?
If your home loan rate is above 8.5% and you're in the 30% tax bracket (where 80C benefit is already exhausted), prepayment often makes sense. If the loan rate is below 7% and you can earn 12%+ in equity, investing may be better.
Is it better to reduce EMI or tenure when prepaying?
Reducing tenure saves significantly more on total interest. Reducing EMI gives monthly cash flow relief. If you don't need the monthly relief, always choose tenure reduction.
Is there a penalty for prepaying a home loan?
For floating-rate home loans, RBI has mandated zero prepayment penalty. For fixed-rate loans, banks may charge 2-3% of the prepaid amount. Always check your loan agreement.
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