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Loan borrowers, particularly the home loan borrowers, have finally found a reason to cheer! Because several leading banks like Canara Bank, State Bank of India (SBI), Punjab National Bank (PNB) and Indian Overseas Bank (IOB) have reduced lending rates on loans linked to many benchmarks.
The banks have taken this decision after the repo rate cut by the Reserve Bank of India (RBI). The RBI slashed the repo rate by 25 basis points from 5.50% to 5.25% at its Monetary Policy Committee (MPC) meeting early this month (December 2025).
While a lower EMI offers immediate breathing room, the reality of carrying a long-term debt remains a heavy burden. Today, the question isn’t just about the EMI; it’s about the massive interest we pay the bank over several years.
EMIs are Down, So Why is the Total Interest Still Scary?
The bitter truth of a home loan is that in the initial years, a major portion of your EMI goes toward paying off the interest. Even though you pay every month, your principal balance decreases very slowly.
In essence:
- The house is yours.
- The debt belongs to the bank.
- The bank reaps the benefit of the interest first.
This is why a 20-year loan keeps you mentally tethered for two decades.
Home Loan Prepayment: A Wise Financial Move
At present, most banks offer home loans at between 7.9% and 8.2% interest rates. On the other hand, safe investments like Fixed Deposits (FDs) or small savings schemes often offer much lower returns after taxes.
This makes home loan prepayment a powerful strategy because it saves Future Interest and works like a Guaranteed Return. It is true that every rupee prepaid cuts down the interest burden significantly, and if it is prepaid, it becomes a risk-free investment with a fixed return. Moreover, you don’t have to worry about market volatility or tax on returns.
Specifically, under the New Tax Regime, where there is no deduction for interest on self-occupied property, carrying a long-term loan becomes an even more expensive deal.
The Emotional Benefits of Early Prepayment
Prepayment isn’t just about saving money; it’s about mental peace.
- It reduces your dependency on the bank year after year.
- It lessens the fear of future uncertainties.
- It clears the path for other dreams like retirement or children’s education.
Even a small prepayment of ₹2 Lakhs on a ₹50 Lakh home loan can save multiple EMIs and reduce the loan tenure by years.
Should Everyone opt for Prepayment?
Balance is key. If you don’t have an emergency fund, putting all your cash into the loan is unwise. However, if your money is sitting in low-yield investments, prepayment is likely the better choice. Viewing a loan as a temporary tool rather than a lifelong companion is the right mindset.
What Lies Ahead?
Whether interest rates will fall further is uncertain. But one thing is clear, holding high-interest debt for a long time slowly erodes your net worth. The joy of a lower EMI is good, but the freedom from debt is better.
Conclusion
The RBI Repo Rate cut has provided much-needed relief, but true financial wisdom lies in clearing your debt as quickly as possible. If you have surplus funds earning low returns, a home loan prepayment can strengthen your financial future.
When the debt is light, life feels lighter.
Disclaimer:
This article is written for general information and awareness purposes only. The information provided should not be considered personal financial advice. Always consult with a financial advisor before making any investment or loan-related decisions.
Dr. Bidyut Barun Sarmah, with 22+ years of experience in print, electronic, and digital media, holds an MA and PhD in Mass Communication and Journalism. He has worked with AIR, Doordarshan, and the Publication Division under the Ministry of Information and Broadcasting. A published author and researcher, Dr. Sarmah writes extensively in both Assamese and English. He was also awarded a prestigious fellowship by the Ministry of Culture, Government of India, for his study on journalistic literature—an achievement that highlights his depth of scholarship and contribution to media studies. At Nest of News, he leads the editorial team and contributes across diverse topics.