Feb 3, 2026
By: Abhijit BasakHome loans spanning 20–30 years usually result in interest payments exceeding the principal. In the initial years, most of the EMI goes towards interest, making long-term borrowing far more expensive for homeowners.
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Loan interest rates depend on factors such as income, age and credit profile. Even a small difference in rates can increase the total repayment substantially, pushing the final cost well above the original loan amount.
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At 8.5% interest for 25 years, a ₹50 lakh home loan carries an EMI of about ₹40,261. Over the full tenure, total interest payable rises to nearly ₹70.78 lakh, far exceeding the principal.
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In the initial phase of a home loan, EMIs largely service interest rather than principal. This slow reduction of principal is why prepayments made early in the loan period have a much stronger financial impact.
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Paying just one additional EMI every year directly reduces the outstanding principal. This lowers future interest calculations, helping borrowers cut both total interest cost and overall loan tenure significantly.
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On a ₹50 lakh loan at 8.5%, paying one extra EMI annually can save around ₹18.3 lakh in interest. This saving comes without altering the regular EMI structure or straining monthly budgets.
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This prepayment strategy can reduce the loan tenure by nearly 5.6 years. Becoming debt-free earlier also improves financial flexibility, freeing up income for savings, investments or other long-term goals.
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Prepaying from the early years delivers maximum benefit because interest forms a larger portion of EMIs then. Even modest annual prepayments during this phase can create outsized long-term savings.
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As income rises, increasing EMI contributions or continuing annual prepayments accelerates principal reduction. This disciplined approach steadily lowers interest liability while keeping repayments manageable.
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This article is for informational purposes only. Loan illustrations are indicative and based on stated assumptions. Actual savings may vary. Borrowers should consult their lender or a financial adviser before making prepayment decisions.
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