Debt3 min read · Updated 21 October 2026
Prepay the home loan or invest? An India comparison
How to decide between prepaying a home loan and investing in India, with a ₹5 lakh example, tax on gains, and the break-even return you must beat.
The core idea
Paying extra on a loan earns your loan rate, with no risk. Investing may earn more, but it is not guaranteed and gains may be taxed. So the question is whether investing beats your loan rate by enough to be worth the risk.
A worked example
₹5,00,000 over 10 years. An 8.75% loan is a sure 8.75%, about ₹11,56,812. Invested at 11% with 12.5% tax on gains, about ₹12,53,332. Investing wins by about ₹96,000 only if 11% holds, which equities do not guarantee.
A simple rule
Above about 9% for the loan, prepaying is hard to beat. Below about 8%, equity can win over a long period. In between, split the money.
Check before you overpay
Check the tax deduction you lose on interest, keep a cash cushion, and note that prepaying early in the loan saves the most interest.
Common questions
Is paying off a loan a good return?
Yes. It is a sure return equal to your loan rate, with no market risk.
Can I do both?
Yes. Many people split the money, keeping a cash cushion first.
Does the investment return include tax?
Compare after tax. The calculator lets you enter a tax rate on gains.