Home Loan Prepayment vs Investment Calculator
Spare money every month and a home loan running? See whether it should go against the loan or into a SIP, with both paths run to the same end date.
Reviewed by Ashutosh Joshi, PGDM (Finance) · Updated Oct 2026 · How we calculate
Key highlights
- Prepaying gives a guaranteed return equal to your loan rate. Investing has to beat that rate, with risk and tax on top.
- On a ₹50 lakh loan at 7.75% for 20 years, an extra ₹10,000 a month against the loan closes it in 13 years and saves about ₹19.1 lakh of interest.
- The same ₹10,000 in a SIP at an assumed 12% grows to about ₹99.9 lakh by the loan’s original end date, about ₹32.5 lakh more than the prepay path.
- The break-even return is about 7.7%, almost exactly the loan rate. A one-off ₹3 lakh bonus prepaid in month one cuts 31 months off the loan.
At these numbers
—
Option A — Prepay, then invest
Option B — Keep loan, invest now
Both options are compared at the same end date — the loan’s original maturity — so they’re measured like for like. Option A invests the full EMI plus the spare amount once the loan is gone. Returns compounded monthly; no tax applied to either side. The 12% default is an assumed long-term equity return, not a guarantee.
Prepay path vs SIP path, year by year
Show year-wise table
Why most answers to this question are wrong
The usual advice is “if your investments earn more than your loan rate, invest.” It’s roughly right but quietly unfair, because it stops at “interest saved”. When you prepay, the loan closes early and the whole EMI is freed. That freed EMI can be invested for the remaining months. A fair comparison runs both paths to the same date, the loan’s original end date, and counts that freed EMI.
That is what this calculator does. Option A pays the EMI plus your spare amount every month until the loan is gone, then invests the full EMI plus the spare amount until the original end date. Option B pays only the EMI and puts the spare amount into a SIP from month one. On the end date, in both cases, the house is yours. The only question is which portfolio is bigger.
How it is calculated
EMI = P × r × (1 + r)n ÷ [(1 + r)n − 1]
Option A: pay EMI + X each month until the balance is nil, then invest EMI + X monthly till month n
Option B: invest X monthly from month 1: X × [(1 + g)n − 1] ÷ g × (1 + g)P = outstanding loan · r = loan rate ÷ 12 · n = months left · X = spare amount a month · g = assumed return ÷ 12. Returns compound monthly; no tax is applied to either side.
Worked example: ₹10,000 a month on a ₹50 lakh loan
Neha and Rohit, 36, have ₹50 lakh outstanding on their Noida flat at 7.75% with 20 years left. Their EMI is ₹41,047. After a raise they have ₹10,000 a month spare. SBI’s home loans start at 7.50% from 15 October 2026 (SBI home loan rates, checked 20 Oct 2026), so 7.75% is a realistic working rate for a good credit profile.
- Option A, prepay: paying ₹51,047 a month clears the loan in 13 years (156 months) and saves about ₹19.12 lakh in interest. For the last 84 months they invest ₹51,047 a month. At 12% that grows to about ₹67.37 lakh.
- Option B, SIP: they keep paying ₹41,047 for 20 years (total interest about ₹48.51 lakh) and invest ₹10,000 a month from day one. At 12% that grows to about ₹99.91 lakh, the same figure our SIP calculator shows for ₹10,000 over 20 years.
At these numbers investing wins by about ₹32.5 lakh. Change the assumed return and the gap moves quickly:
| Assumed return (pre-tax) | Option A: prepay, then invest | Option B: SIP from day one | Winner |
|---|---|---|---|
| 8% | ₹57.61 lakh | ₹59.29 lakh | SIP, narrowly |
| 10% | ₹62.26 lakh | ₹76.57 lakh | SIP |
| 12% (assumed) | ₹67.37 lakh | ₹99.91 lakh | SIP |
The break-even sits at about 7.7% a year, almost exactly the loan rate. 12% is an assumption for a long-term equity SIP, not a promise; I usually plan with 10–12%. Equity gains above ₹1.25 lakh a year are taxed at 12.5% when you redeem, which trims Option B, while interest you save on the loan is never taxed.
What a one-off bonus does: the lump-sum test
Most people don’t only have a monthly surplus. A bonus, an increment arrear or a maturing FD lands once in a while. Here is the same ₹50 lakh loan with a ₹3 lakh lump sum paid in month one, EMI unchanged, compared with investing that ₹3 lakh instead. Both are valued at the original 20-year end date.
| ₹3 lakh, one time | Prepay: freed EMI invested after closure | Invest the ₹3 lakh for 20 years |
|---|---|---|
| Loan closes | 31 months early (17 yrs 5 m) | On schedule (20 yrs) |
| Interest saved | ₹9.75 lakh, guaranteed | Nil |
| Corpus at 8% | ₹14.18 lakh | ₹14.78 lakh |
| Corpus at 12% (assumed) | ₹14.98 lakh | ₹32.68 lakh |
Pre-tax and with a constant rate. The break-even return for the lump sum is about 7.8%.
Three ways to use the same money
Put the two together, ₹10,000 a month plus one ₹3 lakh bonus, and you get three realistic strategies. All three run to the same 20-year end date:
| Strategy | Loan closes in | Interest paid | Corpus at 12% (assumed) | Corpus at 8% |
|---|---|---|---|---|
| Prepay everything (₹10,000/month + ₹3 lakh) | 11 yrs 9 m | ₹24.60 lakh | ₹86.52 lakh | ₹71.73 lakh |
| Invest everything (SIP + ₹3 lakh invested) | 20 yrs | ₹48.51 lakh | ₹1.33 crore | ₹74.08 lakh |
| SIP the ₹10,000, prepay the ₹3 lakh bonus | 17 yrs 5 m | ₹38.77 lakh | ₹1.15 crore | ₹73.47 lakh |
Computed month by month in Python; freed EMI and SIP invested at the start of each month; no tax applied. Investing everything ends with the biggest number if 12% holds. The split gives up about ₹17.7 lakh of that upside but pays about ₹9.7 lakh less interest and is debt-free nearly three years earlier.
My take: SIP the monthly surplus, prepay with lump sums
I look at this from both sides, and both have a case. Prepaying is a guaranteed, tax-free return at your loan rate, and being debt-free sooner is a real comfort. Investing has the higher expected outcome over 15–20 years, but it is not guaranteed and it asks you to keep the SIP running through market falls.
For most salaried borrowers, my view is that the SIP route is generally the right one for regular monthly money. The loan rate is in the 7.5–8% range today, and a long-term equity SIP has a good chance of beating that over 15–20 years, which the tables above show. But when a must-use lump sum comes in, like a bonus, I’d put it into the loan, which is the idea behind our 30-year loan plus SIP plan. It cuts years off the tenure, saves interest that is certain, and it doesn’t disturb the monthly SIP habit.
Two conditions before either path: have an emergency fund of a few months’ expenses first (our FD calculator helps you see what it earns in the meantime), and choose “reduce tenure”, not “reduce EMI”, whenever you prepay.
What the numbers can’t tell you
- Prepaying is certain; investing isn’t. The 12% is an assumption. The 7.75% you save is contractual.
- Tax cuts both ways. Equity LTCG trims Option B. In the old tax regime, home loan interest up to ₹2 lakh a year on a self-occupied home is deductible under Section 24(b), which makes prepaying slightly less valuable. See our old vs new tax regime guide.
- Floating rates move. RBI raised the repo rate to 5.50% on 7 October 2026 (RBI press release) and SBI raised its EBLR from 7.90% to 8.15% from 15 October 2026 (SBI EBLR). A higher loan rate raises the bar investing has to clear.
- Liquidity matters. Money in a fund can be reached in days. Money paid into the loan can’t, without a fresh loan.
- Timing matters. Prepaying in the early years, when most of the EMI is interest, saves the most. Check the split on the EMI calculator‘s year-wise table.
Things to check before you prepay
- No penalty on floating-rate loans. RBI rules bar banks and NBFCs from charging prepayment penalties on floating-rate loans to individuals for non-business use. Fixed-rate loans may charge one.
- Ask for “reduce tenure”. It saves far more interest than lowering the EMI.
- Get it in writing. After a part-payment, ask for the revised repayment schedule and check the new closing date.
Guides worth reading next
Frequently asked questions
Should I prepay my home loan or invest in a SIP?
Compare your loan rate with the return you realistically expect. Prepaying earns exactly your loan rate, with no risk. On a ₹50 lakh loan at 7.75% over 20 years, investing an extra ₹10,000 a month at an assumed 12% ends about ₹32.5 lakh ahead of prepaying. The break-even return is close to the loan rate, about 7.7% a year before tax.
How much interest do I save by prepaying ₹10,000 a month?
On a ₹50 lakh loan at 7.75% for 20 years, paying ₹10,000 a month over the EMI of ₹41,047 closes the loan in 13 years instead of 20 and saves about ₹19.1 lakh in interest.
What does a ₹3 lakh lump-sum prepayment do?
Paid at the start of the same ₹50 lakh, 7.75%, 20-year loan with the EMI kept unchanged, it cuts 31 months off the tenure and saves about ₹9.75 lakh in interest.
Is there a prepayment penalty on home loans?
Not on floating-rate home loans taken by individuals for non-business purposes, under RBI rules. Fixed-rate loans may carry a charge, so check your loan agreement first.
Should I reduce EMI or tenure after prepaying?
Reduce tenure if you can afford the current EMI, because it saves more interest. Reduce EMI only if you need monthly breathing room.
Can I do both, prepay and invest?
Yes. A common approach is to invest the monthly surplus through a SIP and use one-off lump sums such as a bonus to prepay the loan. You keep the long-term growth and still cut the loan’s tenure.
Results are estimates based on the inputs you enter and the formulas shown above. Investment returns are assumed, not guaranteed; interest saved on a loan is contractual. Tax is not modelled. They are not personal investment, tax or loan advice. Rates quoted were checked on 20 Oct 2026 and can change; confirm with your lender before you prepay. See our disclaimer and editorial policy.