How to prepay home loan faster?

Generally home loans are considered as long term loans as the loans are given for the tenure of 15. 20, 25 and even for 30 years. However keeping the loan for longer tenure is not advisable as the cumulative interest that the borrower pays over a period of time is considerably high. Now the question arises how to prepay the loans faster and following are some of the suggested strategies for the same.

  1. Higher EMI with higher income (As your income rises, increase your EMI)

Generally at initial stages, borrower wants maximum loan amount hence he/she can go for maximum tenure keeping the lowest EMI but during the course of time with every increment in the income the borrower should raise the EMI in the proportion so that incremental EMI amount goes towards the repayment of principal. For example if there is increment of 10% in your salary then you may increase your EMI by 5%.

  1. Annual bonus / Windfall gain

Borrowers can use the annual bonus / windfall gains out of sale proceeds of assets to prepay the home loans so that the principal amount is paid faster. (resulting in higher prepayment towards principal and the interest composition changes.

  1. Smart home loan products

There are smart home loan products offered by certain banks / FI which facilitates to deposit the surplus funds with the lending bank / FI (a separate bank account is opened for the same and chequebook and ATM card will be provided) and bank will charge interest only on the outstanding principal after adjustment of the excess surplus funds deposited resulting in higher prepayment towards principal. These surplus funds can again be used whenever required.

  1. Power of part prepayment

In investments power of compounding is considered as the eights wonder as the results are magical. Similarly, in loans repayment, part prepayment on regular basis helps you to reduce the tenure and interest cost considerably. For example home loan with tenure of 25 years, if EMI is raised every year by 5% and part prepayment of 1 EMI is done every year (i.e. instead of 12 EMIs 13 EMIs are paid every year) in that case the tenure will reduce down to 12 years and interest cost will be reduced by ____%. One can adopt different approaches as per ability. Please refer to early repayment calculator to carve out your own strategy. Please click here to go to calculator in tools.

  1. Conversion of loan to lower rate of Interest / Balance transfer of Loan.

If your bank /FI is charging you higher rate of interest for your home loan then please explore the option of conversion of your home loan to lower rate of Interest. Generally you have to pay a small processing fees for the same. If bank / FI is not agreeing to reduce the ROI then you can balance transfer your loan to the lower ROI in another bank (please refer to the chart) while transferring the loan please consider the transfer cost involved in transferring the loan.


One can adopt one of the various strategies to make early prepayment of loans thereby saving considerable interest cost. There is no hard and fast rule, only you have to be consistent with the strategy and vigilant about your own cashflow.

Please refer to our blog on factors to be considered before making repayment of loans.