Loan Prepayment vs Investment Calculator
Compare the guaranteed interest savings of prepaying your home loan against the wealth creation potential of investing surplus cash in equity mutual funds.
+₹10,42,066 guaranteed interest saved
+₹16,85,086 compounding market gains
Investing in equity mutual funds generates ₹6,43,020 higher net terminal wealth than prepaying the 8.5% loan
*Assumes long-term equity compounding. High-interest personal loans (>12%) should always be prepaid first.
Important Educational Disclaimer for Calculator Results:
Calculations are estimates based on your entered inputs and selected return or inflation assumptions. Results are illustrative, hypothetical, and not guaranteed. Actual market returns, interest rates, tax liabilities, and inflation rates will vary and may materially alter your final outcome. This calculator does not constitute financial, investment, or tax advice.
Should you prepay your loan or invest in mutual funds?
Allocating ₹15,000/month for 10 years (total surplus of ₹18,00,000): Prepaying your loan saves ₹10,42,066 in guaranteed debt interest (giving a total debt reduction benefit of ₹28,42,066). Investing the same amount in an equity mutual fund at 12% CAGR accumulates a wealth corpus of ₹34,85,086.
- Mutual Fund Investment Wealth: ₹34,85,086 (+₹16,85,086 net gains).
- Loan Prepayment Debt Relief: ₹28,42,066 (+₹10,42,066 guaranteed interest saved).
- Wealth Creation Advantage: Investing outperforms loan prepayment by +₹6,43,020 over 10 years because the 12% equity compounding spread exceeds the 8.5% borrowing cost.
- Hybrid Solution: The smartest Indian strategy is often 50/50—direct half your surplus cash to home loan prepayment for emotional peace of mind, and invest the other half in an index fund for aggressive wealth accumulation.
How This Calculator Works
Calculates the opportunity cost spread between the expected rate of return on diversified equities and the interest rate charged on your existing debt.
Wealth Delta = Mutual Fund Future Value (SIP at r_equity) - Loan Prepayment Value (SIP at r_loan)Variables in Formula:
Worked Step-by-Step Example
You have ₹15,000 extra per month for 10 years, deciding between prepaying an 8.5% home loan vs starting a 12% equity mutual fund SIP.
Key takeaway: Investing in mutual funds creates ₹6,04,876 (+₹6.05 Lakhs) higher net terminal wealth than prepaying the 8.5% home loan.
Common Mistakes to Avoid
⚠ Comparing gross returns without considering tax deductions
If you claim Section 24(b) tax deductions on home loan interest (30% slab), an 8.5% home loan actually costs only ~5.95% net! The spread in favor of investing is even wider.
⚠ Prepaying low-cost home loans while ignoring high-cost personal loans
Never prepay an 8.5% tax-deductible home loan if you have 13%+ personal loans or credit card debt. Always clear highest-rate debt first.
Frequently Asked Questions
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