Ritesh Sabharwal CFP®

W.M.W #39: Save ₹32L on ₹50L home loan

Reading time: 5 minutes - March 14, 2026

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Hey Reader

I recently received a DM from a LinkedIn connect (Kartik).
Kartik: I took a ₹50 lakh home loan 3 years ago. 22 years left. My bank statement shows I've paid ₹14 lakhs so far but my principal has only reduced by ₹2 lakhs - that's just 4% of loan amount even after paying for 3 years. Where did the other ₹12 lakhs go?"

Answer: Interest.

Here's what Kartik's loan actually looks like:

• Loan amount: ₹50 lakhs at 8.5% for 25 years
• EMI: ₹39,423/month
• Total amount he'll pay over 25 years: ₹1.18 crores
• Interest component alone: ₹68.3 lakhs

He borrowed ₹50 lakhs. He'll pay back ₹1.18 crores. That ₹68.3 lakh interest? It's more than the loan itself.
His reaction: "Is there any way to reduce this? I can't afford to keep paying ₹68 lakhs in interest."

Yes. There is.

This is what i recommended to Kartik and sharing with you all in case helpful. Here's exactly how.

The Home Loan Trap Most People Don't See

Before we get to the strategy, let me show you why home loans silently destroy wealth.

Your EMI has two components:

1. Principal repayment (reduces your loan)
2. Interest payment (pure cost, goes to the bank)

In early years, 80-90% of your EMI is interest. Only 10-20% reduces principal.

Kartik's first EMI breakdown (₹39,423):

• Interest: ₹34,375 (87%)
• Principal: ₹5,048 (13%)

After 3 years (36 EMIs = ₹14.2 lakhs paid):

• Interest paid: ₹12.1 lakhs
• Principal reduced: ₹2.1 lakhs

He paid ₹14.2 lakhs. His loan reduced by only ₹2.1 lakhs (4% loan paid off). The rest? Pure interest cost.

This is how banks make money. And this is why paying off your loan early saves you lakhs.

The Caveat: This Only Works If Your EMI Isn't Choking You

Before you try any part-payment strategy, check this:

Your EMI should be 35-40% of monthly income maximum. If it's 60-70%, You don't have room to part-pay. Focus on increasing income or refinancing at a lower rate first.

Example:

• Monthly income: ₹1 lakh
• EMI: ₹70,000 (70% of income)
• You can't prepay. You're barely managing current EMI.

But if:

• Monthly income: ₹1 lakh
• EMI: ₹35,000 (35% of income)
• You have ₹10,000-15,000/month breathing room to implement part-payment strategies.

If your EMI is above 50% of income, this newsletter won't help you yet. But bookmark it for when you get a raise.
​For everyone else, here's how to destroy your home loan faster than the bank wants you to.

Strategy 1: Pay Just 1 Extra EMI Per Year (The Conservative Approach)

What it is: Pay one additional EMI every year - spread it however you want (P.S. check with your bank for minimum pay, I know some banks requires at least payment of 3 EMI amount as lumpsum).

Just one extra payment per year starting today i.e., 4th year onwards:

• Cuts 4.1 years off the loan
• Saves ₹12.6 lakhs in interest

This is the safest, easiest strategy. No lifestyle change needed. Just one extra payment per year.

Strategy 2: Increase EMI by 10% Every Year (The Aggressive Wealth-Saver)

What it is: Every year, increase your EMI by 10% (roughly in line with salary hikes).

Why it works: Your income grows 8-12% annually (salary hikes, promotions). But your EMI stays flat. Instead of spending that extra income, redirect 10% of current EMI toward part-payment.

Kartik's loan with 10% annual EMI increase from 4th year onwards:

• Loan paid off in: 12.2 years (instead of 25 years)
• Interest paid: ₹36.34 lakhs (instead of ₹68.3 lakhs)
• Savings: ₹31.92 lakhs

You cut the loan tenure by 12.8 years and save ₹31.92 lakhs by increasing EMI by 10% annually.

The Math Behind Why This Works

Normal loan repayment:

• Year 1-10: You're mostly paying interest (only 19% principal paid)
• Year 11-20: Interest and principal roughly equal (additional 40% principal paid)
• Year 21-25: Mostly principal (remaining 40% principal paid)

With additional part-payments:

• Extra payments go 100% toward principal (not interest)
• Principal reduces faster → Interest recalculates on lower principal
• Compounding effect: Lower principal = lower interest = faster payoff

How to Actually Implement This (Without Feeling the Pinch)

#1: Use Your Annual Salary Hike
#2: Use Bonus/Windfall for Extra EMI
#3: Small Monthly Increases You Won't Notice
#4: Investment maturity
#5: Festival bonus

👉 Action Steps for This Week

Step 1: Pull Your Home Loan Statement. Check:

1. Current outstanding principal
2. Remaining tenure
3. Interest rate
4. Has tenure increased due to rate hikes?

Step 2: Calculate Your EMI-to-Income Ratio

EMI / Monthly Income × 100

• Below 35%: You can implement aggressive prepayment (10% annual increase)
• 35-50%: Use conservative prepayment (1 extra EMI/year)
• Above 50%: Focus on income increase first, prepay later

Step 3: Pick Your Strategy

• Conservative (1 extra EMI/year):
• Aggressive (10% EMI increase annually)
• Hybrid (5% increase + bonus part-payment)

Step 4: Inform Your Bank - Critical: When prepaying, tell the bank "reduce tenure, not EMI."
​If you don't specify:

• Bank reduces EMI, keeps tenure same
• You save less interest

Always ask for tenure reduction. Consistency matters more than amount.

P.S. Kartik asked a follow up question: 'This is eye opening but why prepay at 8.5% when I can invest at 12% and earn more?'
Valid question and this I will cover in my next newsletter.

If this opened your eyes to how much interest you're actually paying, forward it to one friend with a home loan. They're likely paying ₹30-40 lakhs more than they need to.

Got questions about your specific loan and prepayment strategy? Hit reply with your loan details and I'll help you calculate potential savings.

Connect with me on LinkedIn, I write every day to help you make smarter money decisions 👇

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