Should Home Loan Borrowers Re-Evaluate Prepayment Plans Before March 31, 2026?

As March 31, 2026 approaches, many borrowers are once again debating whether home loan prepayment is the right financial move or whether surplus funds should be invested elsewhere. 

The discussion has picked up after a recent Hindustan Times report highlighted the case of a 34-year-old Kolkata-based borrower who has a ₹40 lakh home loan and chose to make a ₹2 lakh partial prepayment purely to optimise his tax planning before the financial year-end. 

His calculation was driven by the ₹2 lakh interest deduction limit under Section 24(b) of the Income Tax Act, which remains unchanged and can be verified on the Income Tax Department’s official portal and explained in detail by ClearTax.

By reducing his outstanding principal before March 31, he ensured that his annual interest outgo stayed within the deductible limit while also marginally lowering his future interest burden. However, financial advisors say such home loan prepayment decisions should not be driven by the calendar alone.

Why Prepayment Looks Sensible But Is Not Always Financially Optimal?

Tax rules allow two major benefits to home loan borrowers. Under Section 24(b), a borrower can claim up to ₹2 lakh per year on interest paid, while under Section 80C, up to ₹1.5 lakh can be claimed on principal repayment, as detailed by the Income Tax Department and explained here:

If a borrower is already exhausting these limits, any additional home loan prepayment does not increase tax benefits. 

If investments can reasonably earn more than the loan’s interest cost, it is financially wiser to invest rather than rush into prepayment.

What RBI’s Data And New Rules Are Telling Borrowers?

Housing loans now form the largest share of retail credit in India, highlighting the growing importance of home loans in the banking system. This expanding exposure is one of the reasons the RBI issued the Pre-payment Charges on Loans Directions, 2025 on July 2, 2025, which prohibit banks and NBFCs from charging any prepayment or foreclosure penalty on floating-rate loans to individuals from January 1, 2026 onwards.

This means borrowers who rush to prepay home loans before March 31, 2026 may actually lose flexibility, since from 2026 they will be able to prepay freely without penalties. LoansJagat has also explained this rule change in simple terms, noting that it removes a major cost barrier for early repayment or refinancing. 

Meanwhile, RBI’s recent monetary policy communications indicate a relatively stable interest rate environment, reducing the urgency to aggressively close home loans unless personal financial circumstances demand it.

Prepay Or Invest? The Real Financial Trade-Off

As Pramod Kathuria, Founder and CEO of Easiloan, has pointed out in media interviews, March 31 is only an accounting cutoff. It does not change the economics of the loan itself. If liquidity is limited or alternative investment returns are similar to the loan’s interest rate, date-driven home loan prepayment decisions rarely make financial sense.

At the same time, multiple budget analyses by The Times of India have pointed out that the ₹2 lakh interest deduction limit has not been revised for over a decade, reducing the tax-driven appeal of aggressive prepayment.

Conclusion 

With penalty-free prepayment coming into force from 2026 and tax benefits already capped, home loan prepayment should be guided by cash flow strength and investment returns, not by the financial year-end clock. 

For most borrowers, patience and proper financial comparison may create more wealth than haste.