A home loan usually runs for 15–30 years*, and over such a long period, interest costs can form a major share of the total repayment.
To optimise this cost, many borrowers choose part payment in a home loan, where they pay an extra amount towards the principal apart from regular EMIs. This reduces the outstanding balance and helps lower the total interest costs over the loan tenure.

Also referred to as partial prepayment or pre-payment, this strategy does not close the loan completely, but it speeds up repayment and can offer potential savings when done at the right time. Borrowers often use bonus income, investment maturity proceeds, or accumulated personal savings for a home loan part payment.

Before planning repayment, it is useful to understand the part payment in a home loan meaning, the benefits and potential trade-offs, and how a home loan pre-payment calculator can help estimate savings.

What Is Part Payment in a Home Loan?

Part payment in a home loan refers to paying an additional lump sum amount towards the principal over and above the regular EMIs. Since interest is calculated on the remaining principal, reducing it early can help lower the effective interest burden over time. Home loan part payment is not the same as closing the loan completely, but rather a way to reduce outstanding dues faster and save on total interest payable across the loan tenure.

How Does Part-Payment Work: What Happens When You Pay Extra Towards Principal

When a borrower makes a home loan part payment, the extra amount is directly adjusted towards the outstanding principal. Since future interest is calculated on this reduced principal, the overall interest burden decreases for the remaining loan period. Over time, this can significantly bring down the total repayment amount, especially when part-payment is made during the early years of the loan.
After part payment in a home loan is processed, most lenders allow borrowers to choose how they want the benefit to reflect:

• Keep the EMI unchanged and reduce the loan tenure to close the loan sooner
  
• Reduce the EMI amount while keeping the remaining tenure the same

The preferred choice depends on whether the borrower wants faster loan closure or reduced monthly outflow.

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Benefits of Home Loan Part Payment

Making a partial payment on a home loan offers several practical advantages for borrowers. Some of the key benefits include:

• Since the extra amount directly reduces the principal, the interest charged on the loan decreases for the remaining tenure. This can lead to substantial long-term savings.
• Borrowers can opt to keep EMIs unchanged and shorten the tenure, or reduce the EMI while keeping the tenure the same. Both options offer financial relief in different ways.
• Part payment in a home loan does not follow a fixed schedule. Borrowers can use bonuses, savings or investment proceeds whenever available, which makes repayment more manageable.
• Regular EMIs combined with timely part-payments indicate strong repayment behaviour, which can help improve the borrower’s credit profile.

When Is Home Loan Part Payment Most Effective

The impact of part payment in a home loan depends largely on when it is made and the type of loan the borrower holds.
Part payment tends to work best under the following conditions:

• Early Years of the Loan: Interest makes up a large share of the EMI at the beginning, so reducing the principal early leads to maximum savings.
  
• Availability of Surplus Funds: Annual bonuses, maturity proceeds or savings can be used to make a meaningful prepayment that directly lowers outstanding principal.
  
• Floating-rate Home Loans: As per the RBI guidelines, lenders do not charge prepayment penalties on floating-rate home loans taken for non-business purposes, allowing borrowers to part-prepay without additional costs.
  
• Long Remaining Tenure: More years left on the loan means greater potential for future interest savings.

Borrowers who feel their loan is no longer competitively priced may also consider a home loan balance transfer to reduce interest costs even further.

Example Scenario & Sample Calculation

The impact of part payment can be seen more clearly through simple examples. The following scenario considers a ₹50 lakhs home loan, 10% p.a. home loan interest rate, and a 20-year (240-month) tenure.

Let’s say the borrower decides to make a one-time part-payment of ₹5 lakhs after 3 years.

Loan details:

After 36 EMIs Paid + ₹5 Lakhs Part-Payment
Using a home loan prepayment calculator, you may see the following outcome:

Disclaimer: The above calculations are for illustrative purposes only.
This scenario shows that early part-payment can significantly reduce long-term interest.
You can also use a home loan EMI calculator along with the prepayment calculator to compare different repayment strategies and plan more effectively.

Should You Part-Prepay or Invest Extra Funds?

Deciding between partial payment on a home loan and investing surplus money depends on your financial goals, liquidity needs, and potential returns. The following checklist can help you weigh the options before deciding on a part payment in a home loan:

• If your expected investment return is lower than the loan’s interest cost, part-prepayment may offer better value.
• If you rely on Section 24(b) or Section 80C deductions, consider how prepayment might reduce your eligible interest or principal claims.
• Avoid using all your spare money for prepayment. Keeping at least 6 months of essential expenses aside ensures financial safety.
• If you have short-term commitments such as education fees or relocation costs, maintaining liquidity may be more sensible.
• If future income is uncertain, preserving funds rather than locking them into the loan may provide greater flexibility.

A balanced approach works for many borrowers: part-prepay when it creates meaningful interest savings, and invest when returns and liquidity offer stronger long-term benefits.

Step-by-Step Guide: How to Make a Home Loan Part Payment with Your Lender

Making a part payment in a home loan is usually a simple process, but following the right steps ensures accuracy and avoids delays. Here is a clear guide to help you complete the process smoothly.

• Review clauses related to part-prepayment, including any limits, conditions, or charges.
• Visit your lender’s website or mobile app to check whether part-payment can be made online, through NEFT, or only via in-person submission.
• Some lenders may require a formal request or declaration before accepting the part payment. You may also be asked to confirm whether you want to reduce the EMI or shorten the tenure.
• Pay the desired amount through the channel specified by the lender. In some cases, you may also need to present basic details such as the loan account number or other home loan documents required for verification.
• Always collect a payment acknowledgement or prepayment receipt as proof. This protects you in the event of discrepancies later.
• After the lender processes your part-payment, ask for an updated repayment/amortisation schedule. This will reflect the revised principal, remaining tenure or new EMI amount.

Conclusion: Part-Prepayment Is a Useful Tool If Used Wisely

Home loan part payment can meaningfully reduce interest costs and shorten the repayment period when planned with care. Before deciding, consider your financial goals, liquidity needs and any tax implications, and ensure that an adequate emergency fund remains in place. Periodic loan reviews, along with the use of EMI and prepayment calculators, can help you understand the potential impact more clearly.

If you are planning to buy a property, SMFG Grihashakti offers tailored home loans of up to 90%* of the property value. Use our home loan eligibility calculator to estimate your borrowing capacity and apply online today.