Question 1

How does prepayment reduce loan tenure?

Accepted Answer

When you make a prepayment, it reduces the principal outstanding. Since interest is calculated on the remaining principal, future EMIs pay off more principal faster, reducing overall tenure and total interest paid.

Question 2

Is prepayment better than investing?

Accepted Answer

If your loan interest rate is 8.5% and you can invest at 12%+ (like equity SIPs), investing may be better. But prepayment gives guaranteed tax-free savings equal to the loan interest rate — a risk-free return.

Question 3

Is there a prepayment penalty?

Accepted Answer

RBI guidelines since 2012 prohibit banks from charging prepayment penalty on floating rate home loans. Fixed rate loans may have 2-4% foreclosure charges. Always check your loan agreement.

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