When you make a part-prepayment on a home loan, the bank usually asks a question: should it lower your EMI and keep the end date, or keep your EMI and end the loan sooner? The choice changes how much interest you save, and by more than most people expect.
The same ₹5 lakh, two ways
A ₹40 lakh loan at 9% with 20 years left has an EMI of ₹35,989. You prepay ₹5 lakh.
- Keep the EMI. You go on paying ₹35,989, and the loan ends 65 months sooner. Interest saved: ₹18.42 lakh.
- Lower the EMI. The EMI drops to ₹31,490, ₹4,499 a month less, and the loan ends on the same date. Interest saved: ₹5.80 lakh.
- No prepayment
- Prepay, lower the EMI
- Prepay, keep the EMI
Years from now
See the numbers
| Years from now | No prepayment | Prepay, lower the EMI | Prepay, keep the EMI |
|---|---|---|---|
| Today | ₹40.00 lakh | ₹35.00 lakh | ₹35.00 lakh |
| Year 1 | ₹39.25 lakh | ₹34.34 lakh | ₹33.78 lakh |
| Year 2 | ₹38.43 lakh | ₹33.63 lakh | ₹32.45 lakh |
| Year 3 | ₹37.54 lakh | ₹32.84 lakh | ₹30.99 lakh |
| Year 4 | ₹36.56 lakh | ₹31.99 lakh | ₹29.40 lakh |
| Year 5 | ₹35.48 lakh | ₹31.05 lakh | ₹27.65 lakh |
| Year 6 | ₹34.31 lakh | ₹30.02 lakh | ₹25.75 lakh |
| Year 7 | ₹33.03 lakh | ₹28.90 lakh | ₹23.66 lakh |
| Year 8 | ₹31.62 lakh | ₹27.67 lakh | ₹21.38 lakh |
| Year 9 | ₹30.09 lakh | ₹26.33 lakh | ₹18.88 lakh |
| Year 10 | ₹28.41 lakh | ₹24.86 lakh | ₹16.15 lakh |
| Year 11 | ₹26.57 lakh | ₹23.25 lakh | ₹13.17 lakh |
| Year 12 | ₹24.57 lakh | ₹21.49 lakh | ₹9.90 lakh |
| Year 13 | ₹22.37 lakh | ₹19.57 lakh | ₹6.33 lakh |
| Year 14 | ₹19.97 lakh | ₹17.47 lakh | ₹2.42 lakh |
| Year 15 | ₹17.34 lakh | ₹15.17 lakh | ₹0 |
| Year 16 | ₹14.46 lakh | ₹12.65 lakh | ₹0 |
| Year 17 | ₹11.32 lakh | ₹9.90 lakh | ₹0 |
| Year 18 | ₹7.88 lakh | ₹6.89 lakh | ₹0 |
| Year 19 | ₹4.12 lakh | ₹3.60 lakh | ₹0 |
| Year 20 | ₹0 | ₹0 | ₹0 |
₹40 lakh at 9% with 20 years left; ₹5 lakh prepaid today.
| Keep the EMI | Lower the EMI | |
|---|---|---|
| EMI | ₹35,989 | ₹31,490 |
| Loan ends | After 14 years 7 months | After 20 years |
| Interest saved | ₹18.42 lakh | ₹5.80 lakh |
| Invested after 20 years | ₹28.97 lakh | ₹25.60 lakh |
Invested: the money freed up each month, at 8% a year after tax.
The same ₹5 lakh saves over three times as much interest when the EMI stays the same. That is because a shorter loan stops the interest meter years earlier, while a lower EMI keeps a smaller loan running for the full term.
But what about the money freed up?
Lowering the EMI frees ₹4,499 every month, which you could invest. To compare fairly, assume the freed money is invested at 8% a year after tax in both cases: the monthly saving if you lower the EMI, and the whole EMI once the loan ends early if you keep it.
When the loan’s original end date comes, you would have ₹28.97 lakh invested by keeping the EMI, against ₹25.60 lakh by lowering it. Keeping the EMI still wins, because the loan rate (9.38% a year once compounded) beats the 8% the freed money earns.
Try it
Your prepayment, both ways
- Interest saved, keeping the EMI
- ₹18.42 lakh
- Interest saved, lowering the EMI
- ₹5.80 lakh
Keeping the EMI ends the loan 5 years 5 months sooner. Lowering it brings the EMI to ₹31,490, ₹4,499 a month less.
When lowering the EMI makes sense
- Your budget is tight. A lower EMI gives breathing room every month, which can matter more than the extra interest.
- You expect higher returns elsewhere and will really invest the difference every month, for years. The break-even is the same as for prepaying at all: above about 9.38% a year after tax on this loan.
- Your income is uncertain. A smaller fixed payment is easier to keep up through a bad patch.
If none of these apply, keeping the EMI and shortening the loan is usually the cheaper choice.
The prepay or invest calculator lets you switch between the two and see both answers for your own loan.
For education only. Not investment, tax or insurance advice. Examples use the figures stated in the guide; check your own before you act.