After a prepayment: reduce the EMI or reduce the tenure?

Reduce tenure: the EMI stays as it was, so more of every future instalment goes to principal and the loan ends earlier.

Reduce EMI: the tenure stays as scheduled and your monthly outgo falls. The balance shrinks more slowly, so more interest accrues over the remaining years.

On a ₹35,00,000 home loan at 8.75% for 20 years, prepaying ₹3,00,000 at the end of year 2 and keeping the EMI ends the loan roughly three years early and saves several lakh in interest. Taking the same prepayment as an EMI reduction lowers the instalment by around ₹2,600 but keeps you paying for the full 20 years, saving a fraction of that interest.

The gap comes from one thing only: how long the balance stays outstanding.

• Your instalment is uncomfortably high relative to income and a lower fixed commitment reduces real risk.
• Income has become irregular — freelance, commission or business.
• A larger unavoidable expense is coming, such as school fees or a medical commitment.
• You want to redirect the freed-up amount to a costlier loan, which is a saving in its own right.

Ask for a tenure reduction and keep the freedom to pay only the EMI. Or take the EMI reduction on paper and voluntarily keep paying the old amount — most lenders accept the excess as a part payment. Both keep the interest saving while protecting your worst month.

Whichever you choose, get the revised schedule in writing and confirm the new closure date.