Invest vs Prepay Home Loan
Got a bonus or surplus? See whether prepaying your home loan or investing it builds more wealth.
Runs entirely in your browser — your numbers never leave this page.
How it works
The debate settled by one comparison: guaranteed return (prepay) vs expected return (invest):
- Prepaying earns exactly your loan rate, risk-free and tax-free. At 9%, Rs 5L prepaid avoids ~Rs 18L of interest value over 15 years.
- Investing must beat the loan rate after tax. 12% equity returns vs 9% loan = invest wins on paper.
- The 24b twist: old-regime filers deduct interest up to Rs 2L — a 30% slab taxpayer's 9% loan costs only ~6.3% effectively, making investing far more attractive.
- Risk lens: prepaying is a guaranteed 9%; equity's 12% is an expectation with crashes along the way. Near retirement or risk-averse? Prepay.
- The hybrid: split the surplus — prepay half for the guaranteed win, invest half for growth. Most households land here.
Frequently asked questions
Should I prepay my home loan or invest?
If expected post-tax investment returns exceed your loan rate, investing wins mathematically. If you value certainty, prepaying's guaranteed return equal to the loan rate is unbeatable.
How does the 24b deduction change the math?
It lowers your effective loan cost — a 9% loan costs ~6.3% after 30% slab deduction, making investing much more attractive for old-regime filers.
What return do I need to beat prepaying?
Your post-tax investment return must exceed the loan rate. At a 9% loan, equity's ~12% expected return clears it; debt funds at 7% don't.
Is prepaying risk-free?
Yes — every rupee prepaid saves exactly the loan rate in interest, guaranteed. No market can take it back.
What about emergency funds?
Keep 6 months of expenses liquid before either choice. Prepaying into a loan is illiquid — you can't easily get it back.
Does prepaying affect tax benefits?
Less interest means a smaller 24b deduction. But you were paying Rs 1 in interest to save Rs 0.30 in tax — prepaying still wins.
Should I do both?
Many do — split the surplus. It hedges both outcomes and most households find the balance psychologically comfortable.
What if I'm in the new tax regime?
No 24b benefit, so the loan costs the full rate — prepaying looks relatively better than for old-regime filers.
Does loan tenure matter?
Yes — prepaying early in the tenure saves far more interest than late, since early EMIs are mostly interest.
What about investing in PPF instead?
PPF at 7.1% tax-free vs a 9% loan: prepaying wins mathematically. Compare post-tax returns, always.