How to Prepay Your Home Loan Smartly and Save Lakhs
Quick Answer
The smartest way to prepay a home loan is to pay one extra EMI every year or increase your EMI by 5-10% annually. Even small, regular prepayments in the first 5 years of a 20-year loan can save you millions in interest and reduce your tenure by years.
The Power of Early Prepayment
In a standard 20-year home loan, most of your EMIs in the first few years go toward paying interest, with very little reducing the principal. By making prepayments early in the tenure, you directly reduce the principal amount, which exponentially reduces the interest burden for all remaining years.
Example: For a ₹50 lakh loan at 9% for 20 years, paying just ₹1 lakh extra in the first year can reduce your tenure by almost 12 months and save over ₹5 lakh in interest.
Two Simple Strategies for Faster Repayment
- The 1-Extra-EMI Rule: Simply pay one additional EMI every year as a principal prepayment. This can reduce a 20-year loan to approximately 17 years.
- The 5% Top-up: Increase your monthly EMI by 5% every year as your salary increases. This is the most painless way to finish a 20-year loan in just 12-13 years.
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