Home Loan Prepayment vs Investment Calculator for India
Kedil's home loan prepayment vs investment calculator helps salaried Indians decide whether a surplus does more as a part-prepayment or as an investment. Enter your loan balance, rate, remaining tenure, surplus, expected return, tax regime and slab. It compares interest saved against a post-tax investment corpus, with Section 24(b) and LTCG rules applied rather than ignored.
What your result means
The number you see is the difference in your net position at the end of your current tenure, after tax on both sides.
If prepayment wins, the surplus buys you a certain saving. Interest you don't pay is money you keep, at your loan rate, with no market risk.
If investing wins, it wins on an assumption — the return you typed in. Change it by two points and the answer can flip. That is not a flaw in the maths; it is the actual shape of the decision.
Most people land in between. Splitting the surplus is a real answer, not a cop-out, and this calculator lets you test any split by running it twice.
How we calculate this
Method: post-tax net position comparison. Both options are run to the same end date, and both are taxed before they are compared.
Prepayment is applied to the principal and the tenure is shortened, keeping the EMI unchanged. Once the loan closes, the freed EMI is invested for the remaining months so both paths end on the same day. The investment side grows at your expected return and is then taxed.
Interest saved = (EMI × months remaining today)
− (EMI × months remaining after prepayment)
− prepayment amount
− prepayment charge
− tax deduction lost
Post-tax corpus = future value at your expected return
− 12.5% LTCG on gains above ₹1,25,000- Loan balance
- Principal outstanding today, not the original sanction.
- Interest rate
- Your current floating rate.
- Remaining tenure
- Months left, not the original term.
- Surplus
- The lump sum or monthly amount you are deciding about.
- Expected return
- Pre-tax, annual. Equity funds are usually modelled at 10–12%.
- Tax regime
- Old or new. This decides whether Section 24(b) exists for you at all.
- Tax slab
- Your marginal rate within that regime, which is not the same number in both.
- Prepayment charge
- Zero on floating-rate loans, per RBI.
Sources: incometax.gov.in for Section 24(b), the slabs and LTCG; RBI circular DBOD.Dir.BC.No.110/13.03.00/2013-14 for prepayment charges.
Assumptions
Checked 4 September 2026.
Section 24(b)
₹2,00,000 on a self-occupied house, old regime only. Falls to ₹30,000 if the acquisition, five-year completion or lender-certification conditions are not met. Source: incometax.gov.in.
New regime
Default from AY 2024-25 under s.115BAC. No Section 24(b) on a self-occupied house. You may switch regime each year in your ITR.
LTCG
12.5% on equity gains above ₹1,25,000 per financial year, u/s 112A.
Prepayment charges
Nil on floating-rate term loans to individual borrowers, banks and NBFCs alike, per RBI. Fixed-rate loans can still charge 2–5%.
Tenure, not EMI
Prepayment reduces tenure, not EMI. The tool models tenure reduction throughout.
Not modelled
Rate resets during the tenure, part-prepayment fees on fixed loans beyond the input, and OD-linked home loans.
An example
Praveen is 36, works in IT in Bangalore, and has a ₹38,00,000 home loan balance at 8.6% with 17 years left. His EMI is ₹35,505. His appraisal lands him a ₹3,00,000 bonus. He files under the new regime, so Section 24(b) gives him nothing.
At 12%, investing wins by ₹5.34 lakh. But the break-even is 9.7%, not 8.6% — the investment has to clear the loan rate plus its own capital gains tax. Below 9.7%, prepayment wins. Praveen's real question is whether he believes in 9.7% for 17 years.
What changes the result
Your tax regime — and the slab trap inside it
Under the old regime, Section 24(b) lets you deduct up to ₹2,00,000 of home loan interest a year on a self-occupied house. Under the new regime, which has been the default since AY 2024-25, that deduction does not exist. Same loan, different real cost. The trap: a ₹18 lakh income is at a 30% marginal rate in the old regime but 20% in the new. Enter the slab that matches the regime you actually file under.
The return you assume, not the return you hope for
Prepayment pays a known rate — yours. Investment pays whatever equity does, minus 12.5% LTCG on gains above ₹1,25,000 a year. Because of that tax, the investment has to beat your loan rate by roughly a point before it is genuinely ahead. Type in 15% and the tool will tell you to invest. Type in 9% and it will not. Run it at a rate you would still be comfortable with after a bad three years.
Where you are in the tenure
Early EMIs are almost all interest. A ₹3 lakh prepayment in year 3 removes far more future interest than the same ₹3 lakh in year 15, because it deletes payments from the interest-heavy end of the schedule. This is why the same surplus produces wildly different answers for two people with the same loan amount and rate but different years remaining.
Whether your loan has an overdraft facility
If you hold a MaxGain, Home Saver or similar OD-linked home loan, there is a third option this comparison does not cover. Money parked in the linked account reduces the interest you are charged at the full loan rate, and stays fully withdrawable. That is a prepayment you can undo. For a surplus you may need back within a year or two, it usually beats both choices here.
What people get wrong
How to use
- 1Enter your current loan balance.
- 2Add your interest rate and remaining tenure.
- 3Enter the surplus amount.
- 4Choose your expected investment return.
- 5Review the result and compare both options.
Frequently asked questions
Is it better to prepay a home loan or invest?
Neither, universally. Prepaying earns a certain return equal to your loan rate. Investing may earn more, but only above a break-even that sits roughly a point above your loan rate once LTCG is applied. Run your own numbers — the answer moves with your rate, regime and years remaining.
What return does an investment need to beat prepayment?
More than your loan rate. On a 8.6% loan over 17 years, the pre-tax equity return needed to match prepayment is about 9.7%, because gains above ₹1,25,000 a year are taxed at 12.5% while interest saved is not taxed at all.
Does prepaying only help in the first half of the tenure?
No. This is the most repeated myth on the topic. Interest is front-loaded, so earlier prepayment saves more — but the benefit declines smoothly. There is no point at which prepayment stops being worth it.
Does the new tax regime change the answer?
Yes, and it is the single biggest swing factor. Under the new regime, in force by default for AY 2026-27, you get no Section 24(b) deduction on a self-occupied house, so your full interest is a real cost. That pushes the answer toward prepaying.
Will my bank charge a prepayment penalty?
Not on a floating-rate home loan. RBI bars banks and NBFCs from levying foreclosure charges or prepayment penalties on floating-rate term loans to individual borrowers. Fixed-rate loans are outside that rule and commonly charge 2–5% of the amount prepaid.
Should I reduce the EMI or the tenure when I prepay?
Cutting the tenure saves substantially more interest, because you remove payments rather than shrinking them. Cutting the EMI improves monthly cash flow instead. This calculator assumes tenure reduction. If your bank defaults to EMI reduction, ask them to switch it.
What about a MaxGain or home loan overdraft account?
A surplus parked in an OD-linked home loan reduces your interest at the full loan rate and stays withdrawable. It is effectively a reversible prepayment. If you might need the money back within a couple of years, it often beats both options in this calculator.
How much emergency fund should I keep before doing either?
Six to twelve months of EMI plus household expenses, plus term and health cover, before any surplus goes to prepayment or equity. Both options lock money away — one into a wall, one into a market. Track what your EMIs actually cost you first with Kedil's EMI tracking.
Last updated 4 September 2026 · Formula sources: Income Tax Department · Reserve Bank of India