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Home loan prepayment vs SIP

You have some money left every month. Prepay the home loan or invest it? See both paths side by side at your loan's original end date.

Your own assumption, not a forecast. Markets can stay below it for years.
12.5% suits long-term equity fund gains; use your slab rate for deposits or debt funds.
On these assumptions—
Path A — prepay, then invest the freed EMI—
Path B — keep the loan, invest the extra—
A · Prepay
—
B · Invest
—
Your EMI—
Interest saved by prepaying—
Loan closes—

Educational tool with simplified assumptions. Returns are not guaranteed; actual results will differ. This is not investment, tax or legal advice.

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How it works

The maths, in plain English.

Path A. The extra amount goes into the loan every month. The loan closes early; from then until the original end date, the full EMI plus the extra is invested.

Path B. The loan runs its full term; the extra is invested every month from today.

The comparison. Both paths use exactly the same cash each month, so we compare the investment corpus each leaves you with at the loan's original end date, after tax on the gains. The break-even return is the investment return at which both paths tie.

What numbers cannot show. Prepaying is a certain return equal to your loan rate; investing is an uncertain one. Keep your emergency fund intact before doing either, and note that home-loan tax deductions apply only in the old tax regime.

Questions

FAQ

Is it better to prepay a home loan or invest in SIP?
If your expected after-tax investment return is comfortably above your loan rate and you can live with market swings, investing may leave you ahead; if the two are close, the certainty of prepaying usually wins. Many people split the surplus between both.
Should I reduce EMI or tenure when I prepay?
Reducing tenure saves more interest. Reducing EMI improves monthly cash flow. If your income is secure, reduce tenure.
Are there charges for prepaying a home loan?
Banks and housing finance companies cannot charge prepayment penalties on floating-rate home loans to individuals. Fixed-rate loans may carry a charge — check your sanction letter.
Does prepayment affect my tax deduction?
Only in the old regime, where interest on a self-occupied home is deductible up to ₹2 lakh a year and principal counts under Section 80C. In the new regime there is no deduction for a self-occupied home, so prepaying costs you nothing in tax.

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