How Paying One Extra EMI Every Year Can Help You Save Over ₹25 Lakh On A ₹75 Lakh Home Loan

For most Indians, buying a home is among the biggest financial commitments they make. Home loans help fulfil this dream, but they also stretch for decades, often burdening households with large interest payments. However, a well-planned prepayment strategy—such as paying just one additional EMI every year—can significantly reduce both the interest paid and the loan tenure. According to experts, even minor adjustments in repayment patterns can translate into substantial savings and early loan closure.

Here’s how one small financial move each year can save you over ₹25 lakh and nearly five years on a ₹75 lakh home loan.

Understanding Home Loan Basics and EMI Structure

A home loan consists of two main components: principal and interest. The EMI (Equated Monthly Instalment) you pay covers both, with a larger share going towards interest in the initial years. As the loan progresses, the interest component reduces, and the principal repayment increases.

Banks typically structure home loans based on your income, credit profile, and the loan amount. As your income grows over time, you may find yourself capable of contributing more than the fixed EMI. That’s where prepayment strategies come into play.

What Is Home Loan Prepayment and How Does It Work?

Prepayment means paying an additional amount towards your home loan—over and above your regular EMI. There are two ways to prepay:

• Full Prepayment (Foreclosure): You repay the entire outstanding amount before the loan tenure ends.
  
  
  
• Part Prepayment: You make a lump sum or scheduled extra payments, such as one extra EMI every year.
  
  
  

This article focuses on the second method—part prepayment—especially through the tactic of paying one additional EMI annually.

Different Rules for Fixed and Floating Rate Loans

According to Reserve Bank of India (RBI) regulations, banks cannot charge prepayment or foreclosure fees on floating rate home loans. However, for fixed rate loans, lenders may impose a lock-in period of one to three years and prepayment charges, based on the contract terms.

Experts recommend checking your loan agreement carefully to understand the prepayment terms applicable to your loan type before making any extra payments.

The Power of One Extra EMI Per Year

Let’s consider a common home loan scenario:

• Loan Amount: ₹75 lakh
  
  
  
• Interest Rate: 9.5% per annum
  
  
  
• Loan Tenure: 25 years

EMI: ₹65,527

Total Interest Payable: ₹1.21 crore

Total Repayment (Principal + Interest): ₹1.96 crore

Now, assume you decide to start paying one extra EMI every year from the 4th year of the loan (i.e., from August 2028) until the 21st year (August 2045). This small, manageable addition to your yearly outflow can create major savings:

• Estimated Interest Saved: ₹25.48 lakh

Loan Tenure Reduced By: 4 years and 9 months

This means your 25-year loan could be paid off in just over 20 years, with significant savings on interest alone.

Why Does This Strategy Work?

When you make an extra EMI payment, it is directly adjusted towards the loan principal. This reduces the outstanding balance and, as a result, the interest accrued in future months. Over time, these reduced interest payments accelerate the principal repayment, creating a compounding effect in reverse.

Financial planners say that this method works best when initiated early in the loan term, as the interest portion of EMIs is highest in the initial years.

Who Should Consider This Approach?

This method is ideal for salaried individuals and professionals whose income grows steadily each year. Instead of increasing monthly EMI amounts—which could strain your monthly budget—you simply make one extra payment annually. This could be timed with annual bonuses, tax refunds, or festive savings.

This approach allows for flexibility while staying consistent with long-term financial goals like debt freedom and home ownership.

Additional Tips for Home Loan Prepayment

• Automate your extra EMI: Set a reminder or automate one extra EMI each year to stay disciplined.
  
  
  
• Reinvest savings from rate reductions: If your interest rate is reduced during the tenure, use the surplus from lower EMIs as prepayments.
  
  
  
• Avoid resetting the tenure: When refinancing or making a part-payment, always opt to reduce the tenure, not just the EMI.

Paying one additional EMI every year might seem like a minor step, but its long-term impact is extraordinary. According to financial experts, such disciplined micro-prepayments can help you save lakhs in interest and cut years off your loan term. It’s a practical, low-pressure strategy that suits those who wish to reduce debt without straining their monthly finances.

If financial freedom is your goal, let your home loan repayment plan reflect that intention—one EMI at a time.

Disclaimer: This article is intended for informational purposes only and should not be considered financial advice. Please consult a certified financial advisor or your bank before making any loan-related decisions.