How this calculator works
If you have a lump sum, you can put it into your home loan or invest it. Prepaying earns a guaranteed return equal to your loan rate. Investing may earn more, but with risk and tax.
This calculator keeps the comparison fair. In the prepay case your EMI stays the same, the loan closes early, and every EMI you no longer pay is invested until the original end date. In the invest case the lump sum is invested on day one and the loan runs its full term.
Formula
Worked example
On a ₹40 lakh balance at 8.5% with 15 years left, prepaying ₹5 lakh saves about ₹10.5 lakh of interest and closes the loan 39 months early. If investments truly earn 10% after tax, investing the ₹5 lakh ends roughly ₹2.7 lakh ahead. At an 8% post-tax return, prepaying wins.
Things to watch
- Use a post-tax return. Equity gains above the yearly exemption are taxed, and debt returns are taxed at your slab rate.
- Under the old regime, home-loan interest up to ₹2 lakh a year is deductible, which lowers your effective loan rate. The new regime gives no such deduction on a self-occupied home.
- Keep an emergency fund before prepaying. Money in the loan is hard to get back.
Questions
Should I reduce EMI or tenure after prepaying?
Reducing tenure saves more interest. Reduce the EMI only if monthly cash flow is tight.
Is there a penalty for prepaying a home loan?
Banks and housing finance companies cannot charge foreclosure or prepayment penalties on floating-rate home loans to individuals. Fixed-rate loans may carry a charge.
When does investing beat prepaying?
When your realistic post-tax return is clearly above your loan rate and you can hold investments through bad years.
Does this include tax benefits on the loan?
No. If you claim the interest deduction under the old regime, use a lower effective loan rate in the calculator.
For planning and education only, not tax, legal or investment advice. Last reviewed 2026-10-31.