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Home Loan Prepayment: Home loan EMIs continue for a long time. Especially with 20 or 30-year loans, a significant amount goes towards interest payments. However, if you deposit an extra ₹1 lakh towards the loan annually—in addition to your regular EMI—the tenure can be significantly reduced.

The calculations here assume an annual interest rate of 8.5%. The extra ₹1 lakh payment is made at the end of each year. Instead of using the prepayment to lower the EMI amount, the entire benefit is applied towards reducing the loan tenure.

**₹20 Lakh Home Loan**

If you have taken a home loan of ₹20 lakh and deposit an extra ₹1 lakh annually, a 15-year loan can be paid off in approximately 8 years and 8 months. This means you could become debt-free about 6 years and 4 months earlier.

For a 20-year loan, the duration comes down to about 10 years—meaning the loan could end roughly 10 years sooner. Similarly, for a 30-year loan, paying an extra ₹1 lakh annually could clear the debt in about 11 years—a saving of a full 19 years.

| Loan Tenure | Standard EMI | Tenure after ₹1 lakh annual extra payment |
| :--- | :--- | :--- |
| 15 years | ₹19,695 | 8 years 8 months |
| 20 years | ₹17,356 | 10 years |
| 30 years | ₹15,378 | 11 years |

**₹30 Lakh Home Loan**

Making an annual prepayment of ₹1 lakh on a ₹30 lakh loan also makes a significant difference. A 15-year loan could be paid off in about 10 years, resulting in a saving of approximately 5 years.

For a 20-year loan, the debt could be cleared in about 11 years and 9 months. Meanwhile, the duration of a 30-year loan could drop to approximately 13 years and 10 months—meaning the debt could be cleared about 16 years and 2 months earlier.

Loan Tenure    Standard EMI
Tenure after ₹1 lakh annual extra payment
15 years    ₹29,542    10 years
20 years    ₹26,035    11 years 9 months
30 years    ₹23,067    13 years 10 months

₹50 lakh Home Loan

Making an extra payment of ₹1 lakh annually on a ₹50 lakh home loan can reduce the tenure of a 15-year loan to approximately 11 years and 6 months—a saving of about 3 years and 6 months.

For a 20-year loan, the debt could be cleared in about 14 years. For a 30-year loan, this period could be reduced to around 17 years—meaning the loan could be paid off about 13 years early.

Loan Tenure    Standard EMI
Tenure after ₹1 lakh annual extra payment
15 years    ₹49,237    11 years 6 months
20 years    ₹43,391    14 years
30 years    ₹38,446    17 years
Why does an extra ₹1 lakh annually make such a big difference?

In the initial years of a home loan EMI, the interest component is quite high. When you deposit an extra ₹1 lakh annually, that amount directly reduces the outstanding principal. Consequently, interest for the subsequent months is calculated on a lower principal amount.

This process continues. As a result, while your regular EMI remains unchanged, the loan tenure decreases rapidly.

Where is the biggest impact seen?

The greatest impact is observed in loans with longer tenures. For instance, with a ₹20 lakh loan spanning 30 years, paying an extra ₹1 lakh annually could clear the debt about 19 years early—potentially allowing you to pay off the loan in around 11 years instead of 30.

Therefore, if you receive a bonus, an increment, or any other additional funds annually, you could allocate a portion of it towards prepaying your home loan. This can reduce both the interest burden and the loan tenure.

Disclaimer: This content has been sourced and edited from Money Control. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.