Question 1

How does home loan prepayment work?

Accepted Answer

When you prepay, the extra amount directly reduces your outstanding principal. This lowers future interest charges and can significantly shorten your loan tenure.

Question 2

Should I prepay or invest the surplus?

Accepted Answer

If your home loan interest rate is higher than your post-tax investment returns, prepaying saves more. Otherwise, investing may grow your wealth faster. A financial advisor can help decide.

Question 3

Is there a prepayment penalty on home loans?

Accepted Answer

For floating-rate home loans in India, RBI guidelines prohibit prepayment penalties. Fixed-rate loans may charge a fee (typically 1–3%). Check your loan agreement.

Question 4

What is the difference between prepayment and part-payment?

Accepted Answer

Prepayment typically refers to a lump-sum one-time payment to reduce principal. Both prepayment and making extra monthly payments reduce your outstanding balance faster.