Does it make sense for home loan borrowers to prepay before March 31, 2026?

Home loan borrowers should not rush into prepaying their loans. Instead, they should carefully compare the cost of the loan with the post-tax returns

Rohit Nag, 34, based in Kolkata, has a home loan of ₹40 lakh. As the financial year-end approached, he wanted to maximise his tax benefits under Sections 80C and 24(b). He made a partial prepayment of ₹2 lakh, calculated to fully utilise the remaining interest deduction under Section 24(b), allowing him to claim the maximum ₹2 lakh deduction for the year.

Home loan borrowers should not rush into prepaying their loans. Instead, they should carefully compare the cost of the loan with the post-tax returns (Photo for representational purposes only)(Pixabay)

By prepaying before March 31, Rohit reduced the principal for interest calculation in the current financial year, lowering interest outgo while keeping flexibility for future payments.

Should you prepay your home loan before March 31 2026 or in this financial year? Let us take a look.

Avoid a rushed, date-driven decision

Avoid making a hurried decision when it comes to prepaying your home loan. You must compare the cost of your loan with the post-tax returns from alternative investments. “If the surplus funds earn you less than the borrowing cost and you are still early in the loan cycle, prepayment can be a better option,” says Atul Monga, CEO and co-founder, BASIC Home Loan.

In other words, borrowers should separate emotion from economics. It is rational to prepay only when the after-tax, risk-adjusted return on surplus funds meaningfully lags the effective interest rate on the home loan.

Why the March 31 date matters — and why it doesn’t

“The year-end date does not change the economics of the loan but decides the accounting cut-offs for interest and principal recognition. It does not make economic sense to prepay because of the date if liquidity is limited or alternative returns are similar,” says Pramod Kathuria, founder and CEO, Easiloan.

Here, it is important to remember that prepayments made before March 31 are included in the interest calculation for the current financial year and in the annual loan statement and could result in a minor savings in interest outgo. However, prepayment of principal does not create additional tax deductions over and above the limits prescribed.

“From a pure cost standpoint, a prepayment made in April has almost the same long-term interest savings as one made in March. In that case, the timing of such prepayment should be dictated by comfort on cash flow rather than by tax compulsion,” says Kathuria.

Thus, prepaying before March 31st reduces the principal on which interest is calculated for the current financial year, lowering overall interest cost and improving tax eligibility under Sections 80(c) and 24(b).

“Making full or partial prepayment by March enhances tax efficiency for the year, while an April prepayment delivers benefits only in the next financial year,” says Monga.

How to make a decision?

Here is how you decide whether it makes sense to prepay before March 31 2026.

First, create an easily accessible emergency fund to cover six to nine months of living expenses. Only amounts in excess of this can be considered.

“Then, evaluate tax efficiency. In case the applicable deduction under Section 24(b) for interest and the limit for the principal under Section 80C have already been utilized to the fullest, every additional prepayment provides no incremental tax benefit,” says Kathuria.

Finally, match the effective interest rate on the loan with the post-tax opportunity cost of other fund uses. One should prepay only to the extent that the cost of borrowing is clearly higher than the expected post-tax return from alternative uses of funds. Indeed, partial prepayment is often more rational than full investment of available cash.

Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics