Prepay your home loan or invest the money? Worked example

By Sri Naga Vinay Mutyala · Updated November 2026

You have a ₹50 lakh home loan at 8.5% for 20 years and ₹10,000 a month to spare. Prepay the loan, or start a SIP? Prepaying closes the loan in about 12.9 years and saves about ₹21.8 L of interest. Investing comes out ahead only if your investments earn clearly more than 8.5%.

The comparison

To keep it fair, both options spend the same money every month for 20 years: EMI of ₹43,391 plus ₹10,000.

Prepay: pay ₹53,391 a month until the loan is gone, then invest that full amount every month until year 20.
Invest: pay the normal EMI and invest ₹10,000 a month for 20 years.

At year 20 both are debt-free. What differs is the size of the portfolio.

Portfolio after 20 years, by investment return (8.5% loan)

Investment return	Prepay first, then invest	Invest from day 1	Result
7% a year	₹58.7 L	₹50.8 L	Prepay ahead by ₹8 L
8.5% a year	₹61.9 L	₹60.3 L	Prepay ahead by ₹1.7 L
10% a year	₹65.4 L	₹71.8 L	Invest ahead by ₹6.5 L
12% a year	₹70.2 L	₹91.1 L	Invest ahead by ₹20.9 L

The break-even is close to the loan rate itself: if your money earns more than 8.5%, investing wins; less, and prepaying wins. Prepaying is a guaranteed 8.5% return; equity is not guaranteed.

Does your loan rate change it?

With investments earning 12% a year:

Loan rate	Loan closes in (prepaying)	Interest saved by prepaying	Result
7.5%	13.0 years	₹18.3 L	Invest +₹26.9 L
8.5%	12.9 years	₹21.8 L	Invest +₹20.9 L
9.5%	12.8 years	₹25.6 L	Invest +₹14.3 L
10.5%	12.6 years	₹29.7 L	Invest +₹7 L

A sensible middle path

Build an emergency fund first.
If your loan rate is high (above about 9.5%), prepaying is hard to beat on a risk-adjusted basis.
If it is low and you have a long horizon, investing has the edge, but split the money if the volatility would worry you.
When prepaying, ask the bank to reduce the tenure, not the EMI. That is what saves the most interest.

See also: 20 vs 30 year home loans and the EMI calculator.

Questions people ask

Should I prepay my home loan or invest?

Compare your loan rate with the after-tax return you can reliably earn. Prepaying gives a guaranteed return equal to your loan rate (8.5% here). Investing in equity has beaten that over long periods, but with ups and downs. If the return you expect is not clearly above your loan rate, prepay.

Is prepaying a home loan a good idea?

It is a safe, guaranteed return. Prepaying ₹10,000 a month on a ₹50 lakh, 8.5% loan closes it in about 12.9 years instead of 20 and saves about ₹21.8 L of interest.

Does tax change the answer?

It can. Under the old tax regime, home-loan interest on a self-occupied home is deductible up to ₹2 lakh a year, which lowers the loan’s real cost. Equity gains are taxed when you sell. Both tilt the comparison, so check your own tax position.

More guides

This guide is for education, not financial advice. Figures are before tax and not adjusted for inflation. Consult a SEBI-registered advisor before a major decision.