Securing Hannav Ledger...
Securing Hannav Ledger...
Glossary
Prepayment is paying part or full outstanding loan principal before scheduled EMI due dates to reduce interest burden or tenure.
Prepayment means paying extra on your loan to finish it faster and save interest — like paying ₹1 lakh lump sum on home loan.
Floating rate home loans: RBI barred prepayment penalties on individual floating loans. Fixed-rate may charge 2–4%. Specify reduction in tenure vs EMI when prepaying. Partial prepayment most effective early in loan when interest component is high.
₹30 lakh home loan, year 3, prepay ₹2 lakh choosing tenure reduction saves ~₹6 lakh interest over remaining loan life versus not prepaying.
Compare loan interest rate (8–9% post-tax) vs expected investment return. Guaranteed loan saving often beats uncertain market returns.
Effect similar if total prepayment equal — earlier prepayment saves slightly more interest due to compounding on outstanding.
Faster closure reduces future 24(b) interest deduction. Weigh interest saved against lost tax benefit in old regime.