How to use the prepay or invest calculator
- Enter the outstanding loan, interest rate and remaining tenure from your latest loan statement.
- Choose whether the spare money is a one-time amount or a monthly amount, and enter it.
- Set the yearly return you expect from the investment.
- Switch on tax on gains, and the home loan interest deduction with your slab if you are in the old regime.
- Read the net wealth under each option, the difference and the break-even return.
How the comparison works
Both options start with the same loan and the same spare money, and spend the same cash every month until the loan's original end date.
- Prepay: the spare money goes into the loan, today or on top of each EMI, and the EMI stays the same. The loan closes early. From then on, the EMI you no longer pay (and any monthly spare amount) is invested at the expected return.
- Invest: the loan runs as scheduled and the spare money goes into a lump sum or a monthly SIP.
Difference = investments if you invest − investments if you prepay, both after tax, on the original end date
The loan is fully repaid in both cases by that date, so the investments are the whole difference. Interest is charged monthly on the reducing balance and the investment compounds monthly at the yearly return ÷ 12, as SIP calculators assume. Tax on gains uses equity fund rates: 12.5% on long-term gains above ₹1.25 L and 20% on units held 12 months or less, plus 4% cess, as if everything is sold on that date. Tax saved by the old-regime interest deduction is invested at the end of each year in both options.
Worked example: ₹5 L on a ₹30 L loan
A loan of ₹30 L at 8.5% with 15 yrs left has an EMI of ₹29,542. Prepaying ₹5 L today saves ₹9,88,521 of interest and closes the loan 4 yrs 2 mo early. The freed EMI is then invested for those 4 yrs 2 mo, and grows to ₹18,81,034 after tax at 12% a year.
Invested as a lump sum at the same 12% for 15 yrs, the ₹5 L grows to ₹26,89,424 after tax. Investing leaves ₹8,08,389 more at this return, and the break-even return is 9.11%.
With ₹10,000 a month instead, prepaying closes the loan 5 yrs 10 mo early and saves ₹9,98,887 of interest. At 12%, prepaying ends with ₹38,95,053 and the SIP with ₹45,95,966.
Break-even return by loan rate
The yearly investment return at which both options end level, for ₹5 L spare (or ₹10,000 a month) on a ₹30 L loan with 15 yrs left. Above it investing leaves more; below it prepaying does.
| Loan rate | No taxes | With tax on gains | Plus 30% slab deduction | ₹10,000 a month, with tax |
|---|---|---|---|---|
| 7.5% | 7.50% | 8.09% | 5.86% | 8.13% |
| 8% | 8.00% | 8.60% | 6.43% | 8.65% |
| 8.5% | 8.50% | 9.11% | 7.03% | 9.17% |
| 9% | 9.00% | 9.62% | 7.62% | 9.68% |
| 9.5% | 9.50% | 10.13% | 8.21% | 10.20% |
| 10% | 10.00% | 10.64% | 8.78% | 10.71% |
With no taxes the break-even is the loan rate itself. Tax on gains raises it a little; the old-regime interest deduction lowers it.
Outcomes by expected return
₹5 L spare on a ₹30 L loan at 8.5% with 15 yrs left, with tax on gains and no interest deduction. Net wealth on the original end date.
| Expected return | If you prepay | If you invest | Leaves more |
|---|---|---|---|
| 6% | ₹16,77,459 | ₹11,48,781 | Prepaying, by ₹5,28,679 |
| 8% | ₹17,41,609 | ₹15,19,761 | Prepaying, by ₹2,21,848 |
| 10% | ₹18,09,392 | ₹20,18,705 | Investing, by ₹2,09,313 |
| 12% | ₹18,81,034 | ₹26,89,424 | Investing, by ₹8,08,389 |
| 14% | ₹19,56,775 | ₹35,90,615 | Investing, by ₹16,33,841 |
What the numbers do not capture
- Variable returns. The interest saved by prepaying is known in advance. An equity fund's return is not; it can be well above or below the assumed rate, and the order of good and bad years changes the result.
- Liquidity. Money prepaid into a loan is hard to get back, while most mutual funds can be redeemed in a few days. Some lenders offer an overdraft-linked home loan that combines the two.
- Peace of mind. Some people value being debt-free sooner; others value having a larger pool of savings. Neither shows up in a rupee figure.
- Rate changes. A floating rate can rise or fall over the loan. A higher rate makes prepaying worth more.
For the interest saved by different prepayment plans, see the loan prepayment calculator; for how a SIP grows on its own, the SIP calculator.
Frequently asked questions
Should I prepay my home loan or invest the money?
It depends on the return the investment earns after tax compared with your loan rate. On a ₹30 L loan at 8.5% with 15 years left, ₹5 L prepaid today saves ₹9,88,521 of interest. Investing it in an equity fund instead comes out ahead only if the fund returns more than about 9.11% a year after tax on gains. The calculator shows the break-even for your own loan.
What SIP return do I need to beat prepaying my home loan?
With no taxes, exactly your loan rate: the comparison is level when the investment earns what the loan charges. Tax on equity gains raises the bar slightly. At 8.5% the break-even is 8.50% with no tax, 9.11% with tax on gains for a ₹5 L lump sum, and 9.17% for a ₹10,000 monthly SIP.
How does the home loan interest deduction change the answer?
In the old regime, interest on a self-occupied house is deductible up to ₹2 L a year (earlier Section 24(b)). If you do not prepay, you pay more interest and claim more of this deduction. In the 30% slab, that lowers the break-even return in the example from 9.11% to 7.03%. If your yearly interest is already above ₹2 L, a prepayment may not reduce the deduction at all in the early years.
Is it fair to compare a prepayment with a SIP?
Only if both options spend the same money every month. This calculator makes sure they do: when the prepaid loan closes early, the EMI you no longer pay is invested at the same return until the original end date. Both options are then compared on that date, when the loan is fully repaid either way.
Can I claim the home loan interest deduction in the new tax regime?
Not for a house you live in. The new regime, which applies unless you choose the old one, does not allow the interest deduction on a self-occupied house or the deduction for principal repayment. For new-regime taxpayers, leave the deduction switched off.
Are there charges for prepaying a home loan?
Lenders cannot charge for part or full prepayment of floating-rate loans taken by individuals for non-business purposes, under RBI's directions on pre-payment charges. A fixed-rate loan can carry a charge if the loan agreement and key facts statement disclose it.