About this calculator
When you have spare money and a loan, there are two simple choices: reduce the loan or invest. Prepaying earns exactly your loan rate with no risk. Investing may earn more or less.
Enter your loan, the spare amount and a cautious after-tax return. We compare what you end up with when the original loan would have finished.
How it is calculated
- Prepay: the loan balance drops now. The EMI stays the same, so the loan ends sooner. Each EMI you no longer owe is invested at your return rate until the original end date.
- Invest: the spare money grows at your return rate for the full time while the loan continues.
- Both are compared on the same date.
Assumptions. The return is constant and after tax, EMI stays unchanged, no prepayment charge applies, and nothing else changes. Many lenders do not charge a prepayment fee on floating-rate home loans to individuals, but confirm yours.
Questions
Which is better?
If you expect a lower after-tax return than your loan rate, or you want certainty, prepay. If you expect more and can bear the risk, investing can win. Keep an emergency fund either way.
Does loan interest give a tax benefit?
Home loan interest may give a deduction under the tax rules you use. That lowers your effective loan rate, so check your own position.
Is this exact?
It is a standard formula using the numbers you enter. Your bank, fund or lender may round differently or use different dates, so treat it as a close estimate and check the final figure with them.