Question 1

What is the difference between fixed and floating EMI rates?

Accepted Answer

A fixed interest rate stays exactly the same throughout your loan, meaning your monthly payment never changes. A floating rate moves up and down based on market benchmarks (like the RBI Repo Rate). Floating rates are usually cheaper at first and can save you money when rates drop, but they can also push your payments up if inflation rises.

Question 2

How does making prepayments save me money?

Accepted Answer

When you pay extra money toward your loan, the entire amount goes directly toward reducing your principal balance, not the interest. Because the bank calculates interest on the remaining principal each month, a smaller principal means you accrue less interest, allowing you to pay off the rest of the loan much faster.

Question 3

Are there prepayment penalties on home loans?

Accepted Answer

If you are an individual borrower with a floating-rate home loan, the RBI has banned banks from charging prepayment or foreclosure fees. However, if you have a fixed-rate loan or a loan taken under a business name, the bank might still charge a fee of 1% to 2% of the outstanding balance.

Question 4

Should I choose to reduce my EMI or my tenure when prepaying?

Accepted Answer

Always choose to reduce your tenure if your goal is to save the maximum amount of money. Keeping your EMI the same while shortening the loan duration lets your principal compound downward much faster, resulting in much higher interest savings.

Sitemap

Calculators by Category

Investments (16)

Loans & Debt (6)

Taxes & Salary (5)

Everyday Tools (6)

Information & Support

Insights & Guides