Home Loan Prepayment: When and How Much Should You Pay?

Should You Prepay Your Home Loan in 2026?

Home loan prepayment is one of the most effective ways to save lakhs in interest payments. With average home loan tenures of 15-20 years and interest rates between 8-9.5%, even small prepayments can create substantial savings. However, prepayment requires careful consideration of opportunity costs, liquidity needs, and your overall financial strategy.

Understanding Home Loan Interest Calculations

Home loans use reducing balance method where interest is calculated on outstanding principal. In early years, majority of your EMI goes toward interest, not principal. A ₹50 lakh loan at 9% for 20 years results in total interest of ₹59.8 lakh - more than the principal itself. This is why early prepayments have maximum impact on reducing total interest outgo.

Prepayment Charges by Major Banks in 2026

Floating Rate Loans: Most banks including SBI, HDFC, ICICI offer zero prepayment charges
Fixed Rate Loans: Prepayment charges range from 2-4% of outstanding principal
Hybrid Loans: Charges apply during fixed rate period, waived after switching to floating
Lock-in Period: Some banks impose 6-12 month lock-in before allowing prepayment

Prepayment Impact: Real Numbers

Case Study: ₹50 lakh Loan at 9% Interest

Total Interest without Prepayment: ₹59.8 lakh

Interest Savings with ₹1 lakh Prepayment: ₹10,200

Interest Savings with ₹2 lakh Prepayment: ₹20,400

Interest Savings with ₹5 lakh Prepayment: ₹51,000

Prepayment Calculator Guide

Use BharatBills Home Loan Prepayment Calculator to determine the impact of your prepayment on total interest savings. Enter your loan amount, interest rate, tenure, and prepayment amount to see how much you can save in interest payments.

Best Practices for Prepayment

Assess Your Financial Situation: Ensure you have sufficient liquidity to make prepayments without compromising other financial goals
Consider Opportunity Costs: Evaluate whether the money used for prepayment could earn higher returns elsewhere
Prepay Regularly: Instead of making one large prepayment, consider making smaller, regular payments to optimize savings
Review Loan Terms: Check if your loan has a lock-in period or prepayment charges before making a decision
Use Calculator Tools: Utilize BharatBills Prepayment Calculator for accurate calculations and insights
Consult Financial Advisors: For complex situations, seek advice from financial experts to make informed decisions

Conclusion

Prepaying your home loan can be a smart financial decision, offering substantial interest savings. However, it's crucial to assess your financial situation, consider opportunity costs, and review your loan terms before making a decision. By using tools like BharatBills Home Loan Prepayment Calculator and seeking professional advice, you can make an informed choice that aligns with your financial goals.