Loan Prepayment vs Investment Calculator
Decide whether to prepay your loan or invest the surplus in mutual funds — compares 5 strategies side-by-side.
Typical equity mutual fund long-term CAGR: 10–14%
Used for lump sum prepayment OR initial investment
Extra monthly amount you'd invest instead of prepaying
- Loan closes in
- 20 yrs
- Total interest
- ₹54.14 L
- Investment corpus
- ₹0
- Net wealth
- ₹-54.14 L
- Loan closes in
- 17 yrs
- Total interest
- ₹43.85 L
- Investment corpus
- ₹20.57 L
- Net wealth
- ₹-23.27 L
- Loan closes in
- 7 yrs
- Total interest
- ₹14.48 L
- Investment corpus
- ₹3.61 Cr
- Net wealth
- ₹3.47 Cr
- Loan closes in
- 16 yrs
- Total interest
- ₹36.68 L
- Investment corpus
- ₹28.68 L
- Net wealth
- ₹-8.00 L
- Loan closes in
- 20 yrs
- Total interest
- ₹54.14 L
- Investment corpus
- ₹1.53 Cr
- Net wealth
- ₹99.25 L
How it works: For each strategy, we simulate month-by-month loan amortisation and parallel investment of any freed-up cash flow at your chosen CAGR. Net wealth = final investment corpus − total interest paid on the loan. Assumes loan interest is non-tax-deductible; if your home loan qualifies for Section 24(b) deductions, the prepayment advantage will be slightly smaller.
About the Loan Prepayment vs Investment Calculator
The Loan Prepayment vs Investment Calculator answers the most-asked question among Indian home-loan borrowers with surplus cash: should you prepay your loan or invest the surplus in equity mutual funds? It simulates five strategies in parallel — regular EMI, +1 EMI/year, +1 EMI/month, lump-sum prepayment and invest-the-surplus — and ranks them by net wealth at the end of the tenure.
How the Loan Prepayment vs Investment Calculator works
- Enter your home loan principal, interest rate, tenure and the surplus you want to deploy.
- For each strategy, the simulator runs month-by-month amortisation and parallel investment compounding.
- Net wealth = final mutual fund corpus − total interest paid over the strategy lifetime.
- Results show which strategy wins by ₹ amount and by years saved.
Inputs explained
Formula
Simulates monthly amortisation for each strategy (regular EMI, +1 EMI/year, +1 EMI/month, lump sum prepayment, or invest surplus at chosen CAGR). Net wealth = final investment corpus − total interest paid.
Worked example
On a ₹50L loan at 8.5% for 20 years, +1 EMI/year cuts tenure by ~3 years and saves ~₹12L in interest. Investing the same surplus at 12% CAGR builds ~₹18L extra wealth — but with market risk.
India-specific notes
- •RBI has banned prepayment penalties on floating-rate home loans for individual borrowers.
- •Section 24(b) gives up to ₹2L/year interest deduction (old regime) — lowers the effective loan rate.
- •Section 80C principal repayment up to ₹1.5L counts toward the overall 80C limit.
- •If your post-tax MF CAGR > loan rate, math favours investing; if loan rate > expected return, prepay.
Tips to maximise this calculator
- →Hybrid strategy works best for most: split surplus 50/50 between prepayment (risk-free) and equity (upside).
- →Prepay early in the tenure — interest component is highest in years 1-10.
- →Keep 6 months' EMI in liquid funds before aggressive prepayment — safety net first.
Common mistakes to avoid
- ✕Comparing pre-tax MF returns to post-tax loan cost — apples to oranges.
- ✕Investing the surplus in a savings account at 3% while paying 8.5% on the loan — guaranteed loss.
- ✕Foreclosing the loan and emptying liquidity — no cushion if job loss hits.
Glossary
- Prepayment
- Paying extra toward principal — reduces outstanding balance and interest.
- Foreclosure
- Paying off the entire loan in one shot before maturity.
- Effective rate
- Loan rate adjusted for tax deductions under Sections 24(b) and 80C.
- Opportunity cost
- The return you forgo by prepaying instead of investing the surplus.
Frequently asked questions
Is it better to prepay home loan or invest in mutual funds?
Mathematically, if your expected post-tax mutual fund CAGR exceeds your loan interest rate, investing wins. For a typical 8.5% home loan and 12% equity CAGR, investing usually creates more net wealth — but prepayment offers guaranteed, risk-free returns.
Does this calculator consider tax benefits under Section 24(b)?
No — to keep results conservative, it assumes loan interest is not tax-deductible. If you claim Section 24(b) (up to ₹2L/yr on home loan interest), the real cost of the loan is lower and investing becomes even more attractive.
Which strategy is safest?
Prepayment is risk-free and gives a guaranteed return equal to your loan rate. Investing in equities can outperform but is subject to market volatility. A hybrid (partial prepayment + partial investment) often works best.
What CAGR should I assume for Indian mutual funds?
Large-cap equity funds have historically delivered 10–12% CAGR over 10+ years. Flexi-cap and mid-cap funds can deliver 12–15%. Use 10% for conservative planning, 12% for moderate.