Home Loan Prepayment vs Investment Calculator India
Should you prepay your home loan or invest the same amount? Compare the real financial impact of both choices — with personalised numbers.
Loan Details
Prepayment Details
Floating-rate individual home loans generally have no prepayment charges.
Investment Alternative
Effective post-tax return: 10.80%
Enter Details to Compare
Fill in your loan details, prepayment amount and expected investment return, then click Compare.
Prepayment vs Investment — The Complete Picture
Why compare prepayment and investment?
Prepaying your home loan reduces your debt and saves guaranteed interest. Investing the same money instead could grow your wealth — but with risk. The right choice depends on your loan rate, expected investment return, tax situation, risk appetite, and liquidity needs. This calculator models both outcomes so you can make an informed decision.
What is the opportunity cost of prepayment?
The opportunity cost is what you give up by choosing prepayment over investment. If you prepay ₹5 lakh, that money is tied up in your home. If you had invested it instead at a higher post-tax return, you would have built more wealth. The difference between investment gain and prepayment benefit is the opportunity cost.
When is prepayment clearly better?
Prepayment wins when: (1) your loan interest rate is high (above 9–10%), (2) your expected post-tax investment return is low or uncertain, (3) you want a risk-free, guaranteed saving, (4) you are in the first half of your loan tenure where most EMI is interest, (5) you have no emergency fund need for that money.
When might investing beat prepayment?
Investing may create more wealth when: (1) your loan rate is relatively low (8% or below), (2) you have a long investment horizon and can tolerate equity market risk, (3) your expected post-tax equity return is meaningfully above the loan rate (e.g., 12%+ vs 8.5% loan), (4) your home loan qualifies for tax deductions under Section 24(b) reducing the effective interest cost.
How does the break-even return work?
The break-even post-tax return is the investment return at which investing and prepaying give exactly the same financial outcome. If your expected investment return is above the break-even rate, investing appears better. If below, prepayment appears better. The break-even rate is roughly equal to your loan's effective after-tax interest rate.
Floating rate prepayment charges
As per RBI guidelines, banks and housing finance companies cannot charge prepayment penalties on floating-rate individual home loans. Fixed-rate loans may carry charges of 2–4%. Always confirm with your lender before making a prepayment decision.
Disclaimer
This calculator provides indicative estimates for educational purposes only. Investment returns assumed are hypothetical and not guaranteed. Actual loan schedules depend on lender rules, exact payment dates, reset dates, and charges. Tax treatment varies by individual and product. This is not financial advice. Consult a qualified financial advisor before making prepayment or investment decisions.