The math on prepaying your home loan in India
Prepaying an Indian home loan is almost always the highest-ROI use of an unexpected lump sum. Here is the math, with one big caveat.
On a Rs 50L home loan at 8.7% over 20 years, your EMI is roughly Rs 44,000. Total interest over the full tenure: about Rs 55.6L. If you prepay Rs 5L at the start of year 5, you save approximately Rs 12L in total interest and shave 36 months off the tenure.
RBI rules: for floating-rate home loans, banks cannot charge a prepayment penalty. For fixed-rate home loans, they often do, typically 2 to 3% of the prepaid amount. Confirm with your bank first.
The trade-off is liquidity. A Rs 5L prepayment is Rs 5L that is not in your liquid account next quarter. Hindsight models this exactly: your 90-day cash flow forecast updates to reflect the prepayment, and if your projected balance drops below your user-defined floor, we will tell you.
When prepayment is wrong: when you have higher-interest debt elsewhere (a 36% APR credit card balance, an outstanding tax demand at 12%). Pay those first.
The Hindsight insight engine surfaces a prepayment opportunity when: your liquid forecast stays above your floor after the prepayment, the loan is floating-rate (no penalty), and the interest savings exceed Rs 1L. We are conservative on the threshold, deliberately.