Prepay or Invest Calculator
A guaranteed return from clearing the loan, against an expected one from the market.
- Guaranteed return from prepaying — the loan rate
- 8.5%
- Expected, not guaranteed, from investing
- 12%
Prepaying returns the loan rate guaranteed; investing returns the assumed rate on average, with variance. A one-point edge to the market is not the same kind of one point, and the comparison above cannot make that judgment for you. On the tax side: under the new regime, which is the default, home-loan interest earns no deduction at all, so the loan's effective cost is its full nominal rate. Under the old regime, interest is deductible up to ₹2,00,000.00 for a self-occupied property — but the nuance most calculators miss is at the margin. Once your annual interest already exceeds that cap, prepaying saves no further tax, so the effective rate goes back to the full nominal one. Relief only lowers your effective loan rate while you are still under the ceiling.
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Independent · No commissions · No fund-house data — how the numbers are computed
How it works
A monthly surplus against a running loan poses one of the most common questions in personal finance: clear the debt faster, or invest the money instead. The arithmetic compares net worth on both paths at your horizon — the prepay path carries a smaller balance, the invest path a larger corpus, and only the difference settles it.
The comparison people usually run is loan rate against expected return, and it is nearly right. What it misses is that these are not the same kind of number. Prepaying returns your loan rate guaranteed; investing returns the assumed rate on average, with variance. A one-point edge to the market is not equivalent to a one-point edge to certainty, and no calculator can make that judgment for you.
There is also a tax nuance that most online calculators get wrong, and it works in the opposite direction to intuition. It is described in the FAQ below.
Prepay path: amortise the loan with the surplus added to every EMI, then invest the whole freed payment once it closes. Invest path: pay only the EMI and invest the surplus throughout. Compare corpus minus outstanding balance on each.Comparing net worth rather than headline returns matters because the prepay path ends with no debt and a shorter investing runway, while the invest path ends with a larger corpus and a balance still owing. Only the net figure is comparable.
Frequently asked questions
Does the home-loan tax deduction make prepaying less attractive?
Only while you are under the ceiling, and this is the nuance most calculators miss. Section 24(b) allows interest on a self-occupied property to be deducted up to ₹2 lakh a year under the old regime. If your annual interest is already above that cap, prepaying costs you no further deduction at the margin, so the loan's effective rate is its full nominal rate rather than the after-tax one. Under the new regime, which is the default, there is no deduction at all and the effective rate is always the nominal one.
What return should I assume for the investing side?
Something you would actually accept over the horizon in question, after tax and after the fact that you may not stay invested through a drawdown. Equity has historically returned more than home-loan rates in India over long periods, but not over every period, and the comparison assumes you keep investing the surplus every month without interruption. If you would stop during a bad year, the assumed rate is not the rate you will get.
Should I clear the loan before I have an emergency fund?
No. Money paid into a home loan is very hard to get back out — you would need a top-up loan or a loan against property, on the lender's terms and timetable, exactly when you are least able to negotiate. Three to six months of essential expenses in something liquid comes first, and only the surplus beyond that belongs in this comparison.