Loan Payoff vs Invest Calculator — Should You Prepay or Invest? (India 2026)
Compare prepaying your loan vs investing the same surplus. Get a data-driven recommendation based on your loan rate, time horizon, and tax situation.
When Prepayment Makes Sense
If your loan's effective interest rate (after tax deductions under Section 24(b)) is higher than what you expect to earn from investing, prepaying is mathematically better. This is typically true for loans above 10% or for risk-averse investors. Prepayment provides a guaranteed return equal to your loan rate.
When Investing Is Better
If your expected post-tax investment return exceeds your loan's effective rate — for example, a 12% equity SIP return against an 8.5% home loan — investing creates more wealth over the long term. This is especially true if you're in a higher tax bracket and claim Section 24(b) deductions (up to ₹2 lakh/year), which lower your effective loan cost.
Tax Impact (Section 24(b) & 80C)
Under the old tax regime, Section 24(b) allows up to ₹2 lakh/year deduction on home loan interest. For a borrower in the 30% bracket with an 8.5% loan, the effective rate drops to approximately 5.95%. Section 80C allows up to ₹1.5 lakh/year deduction on principal repayment. These tax benefits make investing relatively more attractive compared to prepayment.
Frequently Asked Questions
Should I prepay my home loan or invest in mutual funds?
If your home loan rate is below 9% and you're in a higher tax bracket, investing in equity mutual funds (12-15% historical returns) usually wins over the long term. If your loan rate exceeds 10% or you have no tax benefit, prepayment is almost always better. Many investors do both — splitting surplus 50-50.
Related Tools
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- SIP Calculator — Project investment returns
- Rent vs Buy Calculator — Rent or buy a home?