Prepay Home Loan or Invest in SIP Calculator 2026
Compare the true post-tax returns of prepaying your home loan versus investing the same lump sum in equity — with LTCG tax and tax benefit accounted for.
Current principal balance
Your existing home loan rate
Years left on your loan
Amount to prepay or invest
Used for effective loan return calculation
Enter your loan details to see the comparison
Lump sum must be less than outstanding loan
Ekatra can help you do both — refinance for a lower rate AND optimize your lump sum
Our loan advisors can negotiate a lower interest rate on your home loan, making the prepayment decision even more favorable — and help you invest the savings smartly.
→ Get Free AuditHow This Calculator Works
The Prepayment vs SIP Calculator solves one of the most common personal finance dilemmas for Indian homeowners: you have a lump sum — should you pay down your home loan or invest it in equity mutual funds?
The calculator computes two parallel paths. On the prepayment path, it takes your outstanding principal, subtracts the lump sum, and recalculates your loan schedule keeping the same EMI. This yields a shorter tenure, and the difference in total interest paid is your "interest saved" — which is effectively your guaranteed, risk-free return on that capital.
On the investment path, the same lump sum is assumed to be invested in a broad equity index fund. Using the expected annual return you specify (default 12%), the calculator compounds this monthly over your remaining loan tenure to arrive at a future value. It then deducts Long-Term Capital Gains (LTCG) tax — 10% on gains exceeding ₹1 lakh — to arrive at your post-tax wealth.
The tax slab matters because home loan interest deductions (Section 24b, up to ₹2 lakh/year) reduce the effective cost of your loan. In the 30% slab, every ₹1 of deductible interest costs you only ₹0.70. The calculator uses a simplified adjustment of 20% of the tax slab to estimate this benefit, which approximates the average impact over a 15-year loan where early EMIs are heavily interest-weighted.
The sensitivity table shows how the verdict changes across equity return scenarios from 8% to 16%. This is important because the single biggest uncertainty is what equity will actually return over your remaining tenure. At low equity returns (8–10%), prepayment often wins. At higher returns (14–16%), investing wins significantly. At 12% — the historical Nifty 50 CAGR — it depends on your loan rate and tax situation.
One important caveat: this calculator optimizes purely on financial returns. Many people derive psychological value from being debt-free that isn't captured in a return comparison. If you're nearing retirement or have unstable income, paying off debt has additional value beyond the numbers. The split strategy — putting half toward prepayment and half toward investment — is often a sensible compromise.
Frequently Asked Questions
The answer depends on two rates: your effective post-tax home loan rate versus the expected post-tax equity return. If your loan is at 8.5% and you're in the 30% slab, you get a tax benefit of about 2% on interest (Section 24b), making the effective rate roughly 6.5%. If equity can deliver 12% CAGR minus 10% LTCG, the post-tax return is around 10.8%. In that scenario, investing wins. But risk tolerance, job security, and peace of mind also matter.
Prepaying a home loan gives you a guaranteed, risk-free return equal to your loan interest rate minus any tax benefit foregone. For a 8.5% loan with 30% slab, you save ~8.5% on the prepaid amount — but you also lose the deduction on that portion. The effective return is approximately 8.5% × (1 − 0.2) = 6.8% in this calculator, since only ~20% of your EMI is in the deductible zone after early years.
Yes, significantly. Under Section 24b, you can deduct up to ₹2 lakh on home loan interest per year. In the 30% slab, this saves ₹60,000 annually. Prepaying reduces your outstanding principal and therefore your interest component, which shrinks this deduction. The calculator accounts for this by adjusting the effective return on prepayment downward. For the new tax regime users with no deductions, prepayment becomes even less attractive versus investing.
Not always. Home loan prepayment gives a guaranteed return equal to your interest rate, while equity mutual funds have historically delivered 12–15% CAGR over 10+ year periods. However, equity returns are volatile and not guaranteed. If your loan rate is high (above 9.5%), prepayment starts looking more attractive, especially for risk-averse investors. The key is to compare post-tax returns on both paths before deciding.
Long-term capital gains (LTCG) on equity mutual funds held for more than 1 year are taxed at 12.5% (revised from 10% in Budget 2024) on gains exceeding ₹1.25 lakh per financial year. The first ₹1.25 lakh of gains is exempt. This calculator uses the ₹1 lakh exemption threshold for simplicity. LTCG tax reduces the effective post-tax yield of equity investments and is a key factor in the prepay vs invest comparison.
Always prefer prepayment over extending tenure if you have surplus funds. Extending tenure lowers your EMI but dramatically increases total interest paid — a 20-year loan at 8.5% can cost nearly as much in interest as the principal itself. Prepayment reduces total interest cost. If cash flow is the concern, consider partial prepayment to bring down EMI rather than extending tenure, which is a much worse financial outcome.
Financial planners recommend maintaining 6 months of expenses as an emergency fund before making any lump-sum prepayment. Additionally, ensure your short-term goals (within 3 years) are separately funded. Only deploy genuinely surplus capital for prepayment or long-term investments. Prepaying and then borrowing at a higher rate for an emergency entirely defeats the purpose. Liquidity always takes priority over optimization.
Yes. Under RBI guidelines, banks and HFCs cannot charge prepayment penalties on floating-rate individual home loans. Fixed-rate loans may have a prepayment charge of 2–4% of the outstanding principal, so always check your loan agreement. Most borrowers in India are on floating rates, meaning they can prepay any amount at any time without penalty. Part-prepayment directly reduces your outstanding principal, lowering future EMIs or tenure.
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Reviewed by Ekatra's experts • Updated May 2026