Prepayment of loan can be defined as the process wherein you pay an additional amount of the principal (greater than the amount payable as his regular EMI). This will help in reducing the outstanding principal amount and thus reduces either the EMI payable or the loan repayment tenure. The banks usually charge you 2-3% of the outstanding loan amount if you are making a prepayment for a certain amount or in cases wherein you are switching your lender.

However, some banks do not charge any amount on the prepayment of loans such as the National Housing Bank while some do not charge up to a certain amount. Some banks like SBI do not charge any penalty if the prepayment is made from your income and not borrowed. It is also recommended that part prepayment is opted for as it could help to reduce the tax amount. If you have two loans, then you should ensure to repay the loans with higher interest rates.

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The benefit so provided by prepaying the loan is sometimes treated as a myth as there may not be considerable savings if the person has already paid most of his loan along with the interest. There are only two main things that need to be considered while prepaying the loan and these are the interest rates and the opportunity cost. The most often asked question is whether prepaying better than investment or vice versa.

It is however recommended that you consider investment options than prepayment unless you are off in your old age and wish to pay off all your debts, you have any health issues or you have multiple loans and you wish to prepay to relieve the financial burden.  Thus it is recommended that you receive financial advice from an expert to ensure the best possible result.

Can you suspend home loan repayment?

Repayment of the loan is legal as well as the moral obligation of the person. While you finance a property through a home loan, it is important to know that the property is owned by the bank or the financial institution until you repay the loan amount. On your failure to make the payment for three months consecutively, the bank or the financial institution may decide and send a reminder first and then may open the property for auction to recover the loan amount.

This right is provided under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This is not only the issue that you may face on the failure but your credit score may also drop as the result of your failure to repay the amount.

However, there is a concept of repayment holiday which is followed wherein the banks can be requested to pause the repayment of the loan. The home loan repayment holiday is generally provided for a period of 6 months but there are also instances wherein this period has been extended up to 12 months. The home loan repayment holiday is granted to genuine borrowers that are unable to make the repayment on the loan due to:

  • Period of leave from the workforce or changing jobs
  • Parental or maternity leave
  • Installing water/energy saving devices (eco-pause).
  • Travel
  • Short-term injury.
  • An extraordinary circumstance such as the coronavirus (COVID-19) pandemic.

Some of the ways by which you can refinance your home loan are by:

  • It is recommended that you maintain an emergency fund either as a fixed deposit or in your savings account. If a circumstance occurs whereby you are unable to pay off your home loan due to financial difficulties then you may use the emergency fund.
  • There are many home loan insurances that are available in the market today. The home loan insurances help in covering the cost of recovery for a considerable amount of time. Thus it is recommended that you buy home insurance along with the loan.
  • You may raise funds by selling off assets.
  • You may also contact your owner and find a solution. You may request for a grace period, reduction of your interest amount or even restructure your loan.

Is partial payment allowed in a home loan?

There may be instances in which the borrower may have received a salary bonus or a larger profit margin. In such a situation, the borrower utilizes the opportunity and repay their loans in parts. You can make a partial payment of the home loan and this will help in bringing down your principal amount as well as your interest rates thus leading to lesser EMI.  As already stated above, prepayment is a process wherein the borrower makes payment of an amount greater than the regular EMI. Prepayment in full or in part is to reduce the financial burden of the borrower.

Many of the borrowers wish to pay off their home loan in full. However, it may not be as beneficial as it should. Thus it is recommended that you pay off your loan partially. In cases wherein the interest amount payable is high, then it is recommended that you pay off your loan in complete and not opt for partial payment. Several part prepayment calculators are available. You may use them to evaluate the benefit that you receive on part payment of your home loan.


Summing up Prepayment of a loan is when you decide to pay more that is required to make as your regular Equated Monthly Installment (EMI). It is beneficial to make a full pre-payment of the loan in the early stages of the loan and also in the case wherein the interest amount that is required to be made is high. It is often recommended that the payment is made in parts as it is a great saving over a long period.

It will also help in the reduction in your existing housing loan tenure and EMI. In cases of genuine problems in repayment of your loan, you may also opt for a repayment holiday whereby you are exempted from making EMI payments for 6-12 months. You may apply for the same in case of loss of employment, sickness, or any other genuine reason which makes the payment of the loan impossible. It is recommended to take financial opinions from experts for the same as well.