Last updated: 2026-10-21
How this comparison works
Both plans spend exactly the same money every month (your EMI plus the extra amount) until your loan's original end date. That's what makes it a fair comparison.
- Prepay: the extra goes to your loan, so it closes early. After that, your whole EMI plus the extra goes into investments every month.
- Invest: you keep paying the normal EMI and invest the extra every month from day one.
At the end, both loans are fully paid. Whichever plan has more money left, after tax on investment gains, is the winner.
The simple rule, and why it's not enough
The usual advice is "invest if your expected return is higher than your loan rate". But investment returns aren't guaranteed, they're taxed, and they go up and down. Prepaying gives a guaranteed return equal to your loan rate. That's why the calculator shows the break-even return: the return your investments must beat, after tax, for investing to win.
Other things to consider
- Peace of mind: being debt-free sooner has real value, especially if your job isn't stable.
- Tax benefits (old regime): home loan interest up to ₹2 lakh a year is deductible under Section 24(b). If you use it, the loan effectively costs you less, which tilts the answer towards investing. This calculator doesn't include it.
- Emergency fund first: keep 6 months of expenses aside before doing either.
- Mix both: many people split the extra money half and half.
Frequently asked questions
Is it better to prepay a home loan or invest in mutual funds?
It depends on your loan rate, the return you expect and how much risk you're comfortable with. If your investments reliably beat your loan rate after tax, investing usually wins over 10+ years. If not, or if you value certainty, prepaying is better. Use the calculator above with your own numbers.
Is there a penalty for prepaying a home loan?
Not for floating-rate home loans taken by individuals: RBI rules don't allow banks to charge a prepayment penalty on them. Fixed-rate loans may have a charge, so check your loan agreement.
Should I reduce my EMI or the tenure after prepaying?
Reducing the tenure saves more interest. This calculator assumes the EMI stays the same and the loan ends sooner.
Full repayment schedule and prepayment savings.