Lesson 3 of 3 · 5 min
Prepaying, and what the taxman gives back
Floating-rate prepayment is charge-free by rule, tenure-cutting beats EMI-cutting, and the 80C and 24(b) breaks live in the old regime only.
Prepaying means paying principal ahead of schedule so less interest can ever accrue. On floating-rate loans to individual borrowers, RBI does not allow foreclosure or part-prepayment charges, so every extra rupee lands on the principal.
The same prepayment then plays out two ways: keep the EMI and shorten the tenure, or keep the tenure and shrink the EMI. The two save very different amounts.
Work it out yourself
Try a ₹2 lakh prepayment on your own numbers, both ways. The tenure-cut route typically saves several times more interest than the EMI-cut route — see the gap for yourself.
Loan Prepayment CalculatorMyth
“Prepaying a home loan attracts a hefty penalty.”
Mostly false
On floating-rate loans to individual borrowers, RBI bars foreclosure and prepayment charges outright — and most Indian home loans float. Fixed-rate loans can carry such charges, and the sanction letter is where they hide. Read it before assuming either way.
The old-regime tax breaks on a home loan
- Principal repaid — section 80C
- Within the ₹1.5 lakh overall 80C ceiling
- Interest on a self-occupied home — section 24(b)
- Up to ₹2 lakh a year
- Availability in the NEW regime, self-occupied
- Neither one
The ceiling is shared with PPF, tuition fees and the rest of the 80C basket, so a big EMI can crowd the others out.
The new regime drops both. Interest on a LET-OUT property stays deductible against its rental income under either regime.
Quick check
Under the new tax regime, what happens to the 80C-principal and 24(b)-interest breaks on a self-occupied home?
Check yourself
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Kabir asks
You prepay ₹2 lakh. The bank asks whether to cut the tenure or cut the EMI. Which saves more interest?
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