Home Loan Prepayment vs SIP Calculator
Enter your home loan and the extra money you can spare each month. See which leaves you richer on the day the loan would end: paying the extra into the loan, or investing it in a SIP.
By Hardik Vegad, founder of WealthGamma · Last updated
Investing in a SIP gets you more by
₹21.12L
- Loan ends if you pay early
- 12y 11m
- Then you invest
- ₹53,391/mo for 7y 1m
- That SIP grows to, after tax
- ₹69.46L
- Interest you save by paying early
- ₹21.79L
Money you have after 20 years
Pay loan early, then SIP
₹69.46L
Invest in SIP
₹90.58L+30% more
Paying the loan early wins only if your SIP earns less than 9% a year.
SIP Strategy Outperforms Prepayment!
SIP generates ₹21.12L MORE Wealth!
Investing surplus in a 12% equity SIP yields ₹21,12,334 MORE post-tax wealth than prepaying an 8.5% home loan.
Wealth advantage
+₹21.12L
Loan and SIP, year by year
- Pay loan early
- Invest in SIP
Year-by-year tableShowHide
| Year | Loan left (normal EMI) | Loan left (paying early) | SIP after loan (paying early) | SIP from day one | Ahead |
|---|---|---|---|---|---|
| Year 1 | ₹49L | ₹47.76L | – | ₹1.28L | SIP +₹3,306 |
| Year 2 | ₹47.92L | ₹45.32L | – | ₹2.72L | SIP +₹11,828 |
| Year 3 | ₹46.74L | ₹42.66L | – | ₹4.35L | SIP +₹26,650 |
| Year 4 | ₹45.46L | ₹39.77L | – | ₹6.18L | SIP +₹49,033 |
| Year 5 | ₹44.06L | ₹36.62L | – | ₹8.25L | SIP +₹80,439 |
| Year 6 | ₹42.54L | ₹33.19L | – | ₹10.58L | SIP +₹1.23L |
| Year 7 | ₹40.89L | ₹29.47L | – | ₹13.2L | SIP +₹1.77L |
| Year 8 | ₹39.09L | ₹25.41L | – | ₹16.15L | SIP +₹2.47L |
| Year 9 | ₹37.13L | ₹20.99L | – | ₹19.48L | SIP +₹3.34L |
| Year 10 | ₹35L | ₹16.18L | – | ₹23.23L | SIP +₹4.42L |
| Year 11 | ₹32.68L | ₹10.95L | – | ₹27.46L | SIP +₹5.74L |
| Year 12 | ₹30.15L | ₹5.26L | – | ₹32.23L | SIP +₹7.33L |
| Year 13 | ₹27.4L | Paid off | ₹95,211 | ₹37.59L | SIP +₹9.24L |
| Year 14 | ₹24.41L | Paid off | ₹7.91L | ₹43.64L | SIP +₹11.32L |
| Year 15 | ₹21.15L | Paid off | ₹15.75L | ₹50.46L | SIP +₹13.55L |
| Year 16 | ₹17.6L | Paid off | ₹24.59L | ₹58.14L | SIP +₹15.94L |
| Year 17 | ₹13.75L | Paid off | ₹34.55L | ₹66.79L | SIP +₹18.5L |
| Year 18 | ₹9.55L | Paid off | ₹45.77L | ₹76.54L | SIP +₹21.23L |
| Year 19 | ₹4.97L | Paid off | ₹58.41L | ₹87.53L | SIP +₹24.14L |
| Year 20 | Paid off | Paid off | ₹72.66L | ₹99.91L | SIP +₹27.25L |
Home loan prepayment or SIP: which is better?
The SIP is better when it earns more after tax than your loan costs, and prepaying is better when it doesn't. On a ₹50 lakh loan at 8.5% with 20 years left and ₹10,000 extra a month, a SIP earning 12% a year ends ₹21.12L ahead after tax: ₹90.58L against ₹69.46L.
The difference is certainty. Every rupee you prepay earns exactly your loan rate, guaranteed, with no tax. The SIP's 12% is a hope, not a promise. At 10% a year the SIP's lead shrinks to ₹5.63L, and at 8% prepaying wins by ₹5.01L.
How much interest does ₹10,000 a month of prepayment save?
It saves ₹21.79L and closes the loan 7 years 1 month early, on a ₹50 lakh loan at 8.5% with 20 years left. The EMI is ₹43,391, and without prepaying you'd pay ₹54.14L of interest in all.
| Extra a month | Loan closes in | Earlier by | Interest saved |
|---|---|---|---|
| ₹5,000 | 15 years 7 months | 4 years 5 months | ₹13.89L |
| ₹10,000 | 12 years 11 months | 7 years 1 month | ₹21.79L |
| ₹20,000 | 9 years 8 months | 10 years 4 months | ₹30.67L |
₹50 lakh outstanding, 8.5% a year, 20 years left. The EMI stays at ₹43,391; the extra cuts the tenure.
What SIP return beats prepaying a home loan?
A SIP has to earn more than your loan rate, plus enough to cover the tax on its gains. With no tax, a SIP earning 8.5% a year ties with prepaying an 8.5% home loan. After 12.5% tax on gains, it needs about 9% a year just to tie.
| Loan rate | SIP must earn, no tax | SIP must earn, 12.5% tax on gains |
|---|---|---|
| 8% | 8% | 8.53% |
| 8.5% | 8.5% | 9.04% |
| 9% | 9% | 9.54% |
| 9.5% | 9.5% | 10.05% |
₹50 lakh outstanding, 20 years left, ₹10,000 extra a month. Below these returns, prepaying wins.
A liquid fund or an FD won't clear that bar, so compare prepayment with equity funds only. To see what a SIP might grow to on its own, use the SIP calculator.
How does tax change the answer?
Tax can push it either way: a home loan deduction makes the loan cheaper to keep, and tax on gains makes the SIP earn less.
- Old tax regime. On a home you live in, you can deduct up to ₹2 lakh of interest a year under Section 24(b), and up to ₹1.5 lakh of principal under Section 80C. At the 30% slab, the interest deduction saves at most ₹60,000 a year before cess.
- New tax regime. Neither deduction is available for a home you live in, so the loan costs its full rate.
- SIP gains. Equity fund gains held over a year are taxed at 12.5% above ₹1.25 lakh of gains a year.
The deduction is capped, so it matters less on a big loan. This ₹50 lakh loan charges about ₹4.21L of interest in its first year, and only ₹2 lakh of that can be deducted.
When does prepaying a home loan make more sense?
Prepay when a sure saving matters more to you than a possibly bigger gain. That's usually when:
- The loan is young. In the early years most of the EMI is interest, so each rupee prepaid saves the most.
- Your loan rate is high. At 9.5%, a SIP has to earn about 10% after tax just to tie.
- You're close to retirement. An EMI is hard to carry once the salary stops.
- The debt keeps you up at night. Peace of mind doesn't show up in a calculator, and it's still worth something.
When does a SIP make more sense than prepaying?
Invest when you have time on your side and can sit through bad years. That's usually when:
- You have 10 years or more. Equity returns are far less shaky over long periods than short ones.
- Your loan rate is low. The lower the rate, the easier it is for a SIP to beat it.
- You need the money to stay reachable. You can sell fund units in a few days. Money paid into the loan is locked in the house.
- You claim the interest deduction under the old regime, which makes the loan cheaper than its rate.
Whichever you pick, build an emergency fund first. The emergency fund calculator shows how much you need.
Should you prepay and invest at the same time?
Yes, splitting the money is a sound middle path. Half to the loan cuts years off it for sure; half to a SIP keeps growing and stays within reach. Putting ₹5,000 of the ₹10,000 into the loan still closes it 4 years 5 months early and saves ₹13.89L of interest.
A common plan is a SIP from the monthly salary, and a lump prepayment when a bonus arrives. For the bonus itself, the SIP vs lumpsum calculator compares investing it at once with spreading it out.
How is this prepayment vs SIP comparison worked out?
Both routes spend the same money each month, the EMI plus your extra, until the loan's original end date. Then the calculator compares what each route has left.
- Prepay route. The extra goes into the loan, which closes early. After that, the full EMI plus the extra goes into a SIP.
- SIP route. The loan runs its full term. The extra goes into a SIP from the first month.
This is what makes the comparison fair. Many calculators stop the prepay route the day the loan closes and forget the freed-up EMI, which makes the SIP look better than it is.
What does this calculator not account for?
It assumes a steady loan rate and a steady SIP return, and real life gives you neither. It leaves out:
- Uneven returns. Equity can fall 30% in a year. The SIP's final value depends on when the bad years come.
- Changing loan rates. Most home loans are floating, so the rate moves with RBI's repo rate.
- Home loan tax deductions. Under the old regime they lower the loan's real cost.
- Prepayment charges. There are none on floating-rate home loans to individuals under RBI rules. Fixed-rate loans may have one.
- Selling in parts. The ₹1.25 lakh exemption is counted once. Selling the SIP over several years would use it each year and lower the tax.
Frequently asked questions
Is it better to prepay a home loan or invest in a SIP?
It depends on one comparison: your loan rate against what the SIP earns after tax. On a ₹50 lakh loan at 8.5% with ₹10,000 extra a month, the SIP ends ₹21.12L ahead at 12% a year, and prepaying wins if the SIP earns less than 9%.
How much interest does prepaying a home loan save?
Paying ₹10,000 extra every month on a ₹50 lakh loan at 8.5% with 20 years left saves ₹21.79L of interest and closes the loan 7 years 1 month early.
What SIP return do I need to beat prepaying my home loan?
More than your loan rate. With no tax, a SIP has to earn 8.5% to match an 8.5% loan, and after 12.5% tax on gains it has to earn about 9%.
Is there a penalty for prepaying a home loan?
Not on a floating-rate home loan taken by an individual. RBI rules don't allow banks and housing finance companies to charge for prepaying those. A fixed-rate loan can carry a charge, so check your loan agreement.
Should I reduce the EMI or the tenure when I prepay?
Reduce the tenure if you can afford the EMI. Keeping the EMI the same and cutting the years saves the most interest. This calculator assumes that.
Can I prepay and run a SIP at the same time?
Yes, and it's what many people do. Splitting the extra money cuts years off the loan and still builds investments you can reach in an emergency.