A prepayment is money you pay into a loan before the schedule asks for it. On a home loan it is usually a lump sum on top of the EMI, or a full closure. People also call a smaller lump sum a part-payment. The EMI itself is not a prepayment. It is the instalment that was already due.
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Prepay Home Loan vs. Invest
Should you pay off your home loan early, or put the extra money into mutual funds?
Open calculatorThe loan is on a reducing balance. Interest this month is charged on what you still owe. A prepayment reduces that balance, so later months are charged on less. That is the whole saving. There is no separate rebate from the bank for paying early, beyond the interest you no longer pay.
You then pick what the schedule should do. Keep the EMI, and the loan ends sooner. Cut the EMI, and the monthly bill falls while the remaining months stay. The first path saves more interest. The second path is for a month that cannot carry the old EMI. The prepayment guide runs both on one illustration. The EMI guide shows how the monthly figure is built before any extra payment.
On a floating-rate loan to an individual for a purpose other than business, the lender cannot levy a prepayment charge if the loan was sanctioned or renewed on or after 1 January 2026. That is the Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025, issued on 2 July 2025. The ban covers part and full payment, any source of funds, and it has no lock-in. A fixed-rate loan can still carry a charge if the sanction letter, the agreement and, where it applies, the Key Facts Statement disclosed it.
Ask for the change in writing or in net banking, and ask for a revised schedule. Check the balance, the EMI and the months left. At a rate reset, the circular of 18 August 2023, as updated on 1 October 2025, says you must also be given the choice to prepay part or all of an EMI-based personal loan.
Pay from an account in your own name where you can, and keep the reference number the lender shows against the loan. A transfer that lands in a savings account, rather than against the loan account number, is not yet a prepayment. Ask for the balance after the credit before you plan the next EMI.
Checked on 3 November 2026. A prepayment you cannot document is a transfer the lender may not have applied to principal.
Questions
Does a prepayment cut the EMI or the tenure?
You choose. The same lump sum saves more interest if the EMI stays and the tenure falls. A lower EMI eases the monthly bill and saves less interest, because the years left stay in place. Say which one you want. A silent request often shortens the tenure.
Can the lender charge for a part-payment?
On a floating-rate loan to an individual for a non-business purpose, sanctioned or renewed on or after 1 January 2026, no. The Reserve Bank’s Directions of 2 July 2025 cover a part payment and a full closure, with no lock-in. A fixed-rate loan can still carry a disclosed charge.
Does the year of a prepayment change my tax?
In the old regime the principal you repay can sit in Section 123 up to ₹1,50,000, and the interest deduction falls as the balance falls. Section 202 gives neither deduction on a self-occupied house.
Sources
Figures checked 3 Nov 2026.