SIP vs Home Loan Prepayment Calculator
You have extra cash every month. Should you use it to prepay your Home Loan and save interest, or invest it in a Mutual Fund SIP to create wealth? Find the mathematical answer.
Last updated: May 2026
Cash you have left over after expenses
Equity Mutual Funds historically yield 10-12%.
The Winner is:
You will be richer by ₹18.14 Lakhs at the end of year 15.
Scenario 1: Prepay
Interest Saved:
₹18.35 L
Years Saved:
6.5 Years
Final Portfolio Wealth:
₹82.78 L
Scenario 2: SIP
Interest Saved:
₹0 L
Years Saved:
0 Years
Final Portfolio Wealth:
₹100.92 L
*How we compare: If you prepay, your loan finishes early. After it finishes, we assume you invest the entire old EMI + surplus into an SIP for the remaining years. This allows an apples-to-apples net-wealth comparison at Year N.
Reviewed by Sneha Iyer, CFP
•Certified Financial PlannerSpecializing in wealth management and retirement planning. Sneha validates the investment projection models and compound interest algorithms used across our financial tools. All mathematical models and regulatory data points have been verified for the current 2026 fiscal period.
The Ultimate Dilemma: Prepay or Invest?
It is the most common financial question for Indian homeowners: "I have an extra ₹20,000 every month. Should I put it towards my home loan to close it early, or start a Mutual Fund SIP?"
The answer comes down to a simple mathematical comparison: The cost of capital vs The return on capital. If your Home Loan charges you 8.5% interest, but your Equity SIP earns 12% interest, math dictates that investing in the SIP will leave you richer. However, prepaying the loan offers "guaranteed" savings and emotional peace of mind.
How to use this calculator
- 1Enter Loan Details — Input your outstanding principal, current interest rate, and how many years are left on the loan.
- 2Enter Surplus Cash — Input the extra money you have available every month to either prepay the loan or invest in a SIP.
- 3Set SIP Expectations — Set a realistic return rate for your SIP (Historically, Nifty 50 has returned 11-13%).
- 4Compare Apples-to-Apples — The calculator fast-forwards to the end of your original loan tenure and compares your total Net Wealth in both scenarios.
Formula & example
Apples-to-Apples Wealth Comparison
Example: ₹50L Loan @ 8.5% for 15 Years. You have ₹20,000 extra per month. SIP Rate: 12%.
- If you Prepay: Loan finishes 6.4 years early. You save ₹18L in interest. Final Wealth: ₹81L.
- If you SIP: Loan runs for 15 years. SIP grows to ₹1.01 Crore.
- Verdict: SIP wins by ₹20 Lakhs.
Benefits
Mathematical Clarity
Removes emotion from the decision and shows you exactly how much money you leave on the table.
Liquidity Awareness
SIPs remain liquid and can be withdrawn in an emergency. Prepaying a loan locks your cash into the walls of your house.
Tax Bracket Optimization
Helps you realize that if you claim Section 24(b) tax benefits, your 'effective' home loan interest rate is actually much lower than 8.5%.
Use cases
Bonus Deployments
Deciding what to do with a Diwali bonus or annual performance bonus.
Salary Hikes
Allocating the extra take-home pay from a recent promotion.
Frequently asked questions
Why does SIP usually win?+
Because of the interest rate arbitrage. Your home loan costs you 8-9%. Your SIP grows at 12-14%. Because the return on investment is higher than the cost of debt, you mathematically build more wealth by investing.
Is prepaying a home loan a bad idea?+
Not necessarily. If the stock market drops, your SIP returns could fall below 8%, making prepayment the winner. Prepayment offers a 100% guaranteed, risk-free return equal to your loan interest rate. It also offers immense psychological relief.
What if I do a 50/50 split?+
This is what most financial advisors recommend. Use 50% of your surplus to prepay the loan to reduce debt anxiety, and invest the other 50% in an SIP to ensure wealth creation and liquidity.