Home Loan EMI
vs Prepayment

If your home loan interest rate is 8.5% and you can earn 12% from equity SIPs, mathematically investing wins. But consider: loan interest is certain cost, investment returns are uncertain.

A balanced approach: prepay enough to reduce tenure to 15 years, invest the rest via SIP.

Banks typically approve loans where EMI is up to 50% of net income. But financial planners recommend keeping EMI at 30-35% of take-home salary.

This leaves room for savings, emergencies, and lifestyle without financial stress.

Both work — lumpsum prepayments (bonus, increment) have the biggest impact on total interest. But increasing EMI by ₹2,000-5,000 annually (salary increment) is easier to sustain and steadily reduces your tenure.

Many banks allow step-up EMI plans.

For floating rate home loans (most Indian home loans), RBI has mandated ZERO prepayment charges since 2014. Fixed rate loans may have 2-3% prepayment penalty.

Always choose floating rate to maintain prepayment flexibility.