After prepayment: reduce EMI or reduce tenure?

The same loan and extra payment

A synthetic loan of ₹25,00,000 at 9% for 20 years, with ₹1,00,000 paid immediately after regular EMI 12. No annual extra payments are included. Both options receive the same lump sum at the same time.

Read both the saving and the monthly commitment

Keeping the EMI saves 22 months and ₹4,06,338 of interest versus no prepayment. Reducing it frees about ₹917 a month from month 13 and saves ₹1,09,052 of interest. The first option keeps a larger monthly cash outflow; this is why the interest totals alone do not measure affordability.

Both plans use the same extra cash now. A lower EMI can help a tight monthly budget, while unchanged payments can suit someone who can continue them comfortably. The study does not model investing the freed cash or decide how much emergency cash you need.

Method and timing

The annual nominal rate is divided by 12. Each month starts with interest on the opening balance, followed by the regular payment, then any extra principal. EMI reduction recalculates payments over the original remaining months; tenure reduction retains the original EMI until the final payoff.

EMI = P × r ÷ (1 − (1 + r)⁻ⁿ)

P is outstanding principal, r is the annual percentage rate divided by 100 and 12, and n is the remaining number of months. At zero rate, EMI is P ÷ n.

After EMI 12, the remaining principal is ₹24,53,182. The extra payment reduces it to ₹23,53,182. The new EMI applies from month 13. The unchanged-EMI plan finishes with a final payment of about ₹11,005 in month 218.

Article values come from the same pure calculation engine as the tool. A separate 45-digit Decimal outstanding-balance and discounted-cash-flow calculation independently checked the study totals and payoff month. Automated fixtures also reconcile principal, interest and every payment. This verifies the stated model, not a lender statement.

When the real decision can change

• Changing rates or later prepayments change future savings. Recalculate after a rate reset; this study holds the rate constant.
• Fees, taxes, insurance, pre-EMI interest, staggered disbursement and lender rounding or daily-interest conventions are excluded.
• Your agreement determines prepayment eligibility, charges and whether or when an EMI or tenure recast is available. Obtain the lender’s revised schedule before relying on it.
• A shorter remaining term, different affordable payment or need for liquid savings can change which trade-off is useful. No personalized borrowing or investing recommendation is made.

Sources and reproducibility

• FinCalc Studio: monthly reducing-balance methodology

  Calculation convention and exclusions used by this model.

• Kotak: home-loan prepayment calculator

  A lender example of the EMI-versus-tenure choice; not the source of this study’s numerical results or universal fee rules.