Home Loan Prepayment vs SIP Calculator India 2026
Every year, millions of salaried Indians ask the same question after their annual appraisal: should I use this bonus to prepay my home loan or invest in a mutual fund SIP? Prepayment means paying extra money toward your loan principal on top of your regular EMI - reducing the outstanding balance faster, closing the loan early, and saving the compound interest on every rupee you prepay. The standard "prepay if rate is above 9.5%" advice ignores the snowball effect, amortisation stage, and Section 24b tax regime impact - three factors that can completely flip the answer. This calculator models all three and gives you the exact corpus difference.
How This Calculator Works + Quick Examples
Enter your outstanding loan amount, current interest rate, and remaining years. Then enter the monthly surplus you have available - this is the extra money over your EMI that you can either put toward prepayment or invest in SIP. If you received a bonus, enter it as a one-time lump sum.
Strategy A (Prepay + Snowball) applies your monthly surplus as extra principal each month. When the loan closes early, the freed EMI plus your surplus becomes a large SIP for the remaining years. This snowball often makes prepayment more competitive than a simple rate comparison suggests.
Strategy B (SIP from Day 1) invests the same monthly surplus in an equity mutual fund from today, while the loan runs its full course.
The recommendation is based on which strategy produces higher final wealth - not just a rate comparison. The break-even rate shown is specific to your inputs, not a generic 9.5% rule.
Worked Example: Arjun, 34, Pune - Gets Rs 3L Annual Bonus
Arjun has a Rs 50L home loan at 8.75% with 18 years remaining. His EMI is Rs 44,986/month. He receives Rs 3L as annual bonus and has Rs 15,000/month surplus. He wants to know: should the bonus go to prepayment, SIP, or both?
| Input | Arjun's Numbers |
|---|---|
| Outstanding principal | Rs 50L |
| Interest rate (EBLR-linked) | 8.75% (repo 5.25% + spread 3.5%) |
| Remaining tenure | 18 years (216 months) |
| Monthly surplus | Rs 15,000 |
| Annual bonus (lump sum) | Rs 3,00,000 (deployed year 1) |
| Tax regime | New regime (no Section 24b) |
| SIP return assumed | 12% CAGR / 11.2% post-LTCG |
Strategy A: Full Prepayment (Bonus + Monthly Surplus)
Arjun deploys Rs 3L as lump sum prepayment in Month 1, then Rs 15,000/month as additional principal. The loan closes in approximately 126 months (10.5 years) instead of 216. Interest saved: approximately Rs 30L. Then Rs 59,986/month (EMI + Rs 15K) goes into SIP for the remaining 90 months. Snowball corpus at 11.2%: approximately Rs 1.15 crore. Total Strategy A benefit: Rs 30L saved + Rs 1.15Cr snowball = approximately Rs 1.45 crore.
Strategy B: Full SIP (Invest Bonus + Monthly Surplus) - modelled with exact corpus projections
Arjun invests Rs 3L as lump sum in Month 1, then continues Rs 15,000/month SIP for all 216 months. Lump sum at 11.2% for 18 years: approximately Rs 19.3L. Monthly SIP at 11.2% for 216 months: approximately Rs 1.17 crore. Total Strategy B: approximately Rs 1.36 crore.
Strategy C: 60% Prepay / 40% SIP
Rs 1.8L lump sum prepayment, Rs 9,000/month prepayment, Rs 1.2L lump sum in SIP, Rs 6,000/month SIP. Loan closes in approximately 148 months (12.3 years). Snowball then invests Rs 50,986/month for 68 months. Combined corpus: approximately Rs 1.41 crore.
| Strategy | Final Corpus | Loan Closes | Interest Saved | Best For |
|---|---|---|---|---|
| A - Full Prepay + Snowball | Rs 1.45 Cr | 10.5 years | Rs 30L | Risk-averse, wants debt-free faster |
| B - Full SIP | Rs 1.36 Cr | 18 years (runs full) | None | Risk-tolerant, market optimistic |
| C - 60/40 Split | Rs 1.41 Cr | 12.3 years | Rs 18L | Balanced, best risk-adjusted outcome |
At 8.75%, Strategy A (Prepay + Snowball) wins by Rs 9L over pure SIP. This is because 8.75% is above the break-even (approximately 8.8-9% for new regime borrowers), and the snowball effect from redirecting the full EMI after loan closure is powerful. At 8.5%, Strategy B would win narrowly. This 0.25% rate difference is why knowing your exact effective rate matters. The home loan EMI calculator amortisation schedule shows your exact current month-by-month interest-to-principal split to verify which zone you are in.
The Break-Even Rate: Exact Math Behind the 9.5% Rule
The correct comparison is not "loan rate vs SIP rate." It is post-tax guaranteed return from prepayment vs post-LTCG expected return from SIP.
Post-LTCG SIP return: At 12% gross CAGR (the Nifty 50 20-year trailing CAGR per NSE India is 11.8-13.2%), LTCG tax of 12.5% applies on gains above Rs 1.25L/year (Budget 2024, unchanged Budget 2026). For a long-term SIP investor, the effective post-LTCG return is approximately 11.2% per year. This is the real SIP return, not 12%.
Post-tax prepayment return: Under the new tax regime, no Section 24b deduction is available for self-occupied property. The full loan rate is your guaranteed saving. At 9% loan rate, prepaying Rs 1L saves exactly Rs 9,000 per year - guaranteed, zero risk. Under the old regime at 30% slab, Section 24b reduces effective rate: 9% x (1 - 0.30) = 6.3%. This makes SIP far more attractive under the old regime.
The break-even is where guaranteed prepayment saving = post-LTCG SIP return. At 11.2% post-LTCG SIP return, the break-even home loan rate is approximately 9.5% under the new regime. At 6.3% effective rate under old regime at 30% slab, SIP at 11.2% beats prepayment by 4.9 percentage points - making it the clear mathematical winner.
| Loan Rate | New Regime Effective | Old Regime 30% Slab | Post-LTCG SIP (12%) | Verdict |
|---|---|---|---|---|
| 8.0% | 8.0% | 5.6% | 11.2% | SIP wins clearly |
| 8.5% | 8.5% | 5.95% | 11.2% | Prepay wins (with snowball) |
| 9.0% | 9.0% | 6.3% | 11.2% | Prepay wins clearly |
| 9.5% | 9.5% | 6.65% | 11.2% | Prepay wins decisively |
| 10.0% | 10.0% | 7.0% | 11.2% | Prepay wins (new regime) |
| 11.0%+ | 11.0% | 7.7% | 11.2% | Prepay wins decisively |
Note: with the snowball effect built into this calculator, break-even is approximately 8.3% for a Rs 50L/18yr/Rs 20K surplus profile - lower than the traditional 9.5% figure which ignores EMI redirection after loan closure. The RBI repo rate as of early 2026 is 6.25%. Most RLLR-linked home loans sit at 8.5-9.5%, placing the vast majority of Indian home loan borrowers squarely in the grey zone where neither strategy dominates clearly - making the 60/40 split the most risk-adjusted approach. Check your current rate against this table before deciding. The cost of debt vs investment guide shows why the guaranteed interest saving from prepayment is mathematically equivalent to earning that rate risk-free.
The 2026 Rate Context: Most Indian Borrowers Should Choose SIP Right Now
The RBI cut the repo rate four times in 2025, reducing it from 6.5% to 5.25% - a 125 basis point reduction. As of April 2026, most EBLR-linked home loans have reset to 7.1-8.5%. This fundamentally shifts the prepayment vs SIP decision for most existing borrowers.
| Loan Vintage | Typical Rate (Apr 2026) | Effective Rate (New Regime) | Verdict vs SIP at 11.2% |
|---|---|---|---|
| Taken 2024-2026 (EBLR-linked) | 7.1-8.0% | 7.1-8.0% | SIP wins clearly - 3-4% advantage |
| Taken 2022-2023 (EBLR-linked) | 8.0-8.75% | 8.0-8.75% | Grey zone - run the calculator |
| Taken pre-2019 (MCLR-linked) | 8.5-9.5% | 8.5-9.5% | Check if rate has reset - may be high |
| Fixed rate loans | 9.5-11% | 9.5-11% | Prepay aggressively |
Pre-2019 MCLR Borrowers: Check Your Rate First
If your loan was taken before October 2019, you may still be on MCLR or even the older Base Rate system. These rates have NOT automatically reset with repo cuts. Many borrowers on old MCLR are still paying 9-9.5% while new borrowers on EBLR get 7.1-8%. Switching to EBLR costs approximately Rs 5,000 - a one-time fee that saves lakhs in interest over remaining tenure. Check your loan agreement or latest statement to confirm your benchmark rate. If your rate is still high and you are eligible, refinancing eligibility under the new lower rate should be checked first. A borrower paying 9.5% who switches to EBLR at 8.0% effectively gains 1.5% - changing the verdict from "prepay" to "SIP wins."
If Rates Drop Further - When Does the Verdict Switch?
If the RBI cuts again to 4.75-5%, EBLR-linked loans could reach 7.5-8.0% by end-2026. At 8.0%, even the snowball effect cannot overcome the SIP advantage - Strategy B wins by a comfortable margin. This means for most new borrowers in 2026, SIP is the mathematically better choice, and the primary argument for prepayment is psychological (debt-free peace of mind) rather than mathematical. The exact scenario analysis at 8.5%, 9%, 9.5% and 10% loan rates covers what happens at each rate step with actual corpus calculations.
Zero Prepayment Penalty From January 2026
The RBI's Prepayment Charges on Loans Directions 2025 mandates that no prepayment or foreclosure fees can be charged on floating-rate loans to individual borrowers from January 1, 2026. This applies to all banks and NBFCs regulated by RBI. For anyone on a floating-rate home loan, prepayment is now completely free - removing one of the historic arguments against partial prepayments. The only exception: fixed-rate loans may still carry prepayment charges.
The Amortisation Truth: Why Early Prepayment is 3x More Effective
In a 20-year home loan at 9%, approximately 50% of the total interest is paid in the first 7 years. This front-loading is structural - your EMI stays constant but the interest-to-principal ratio shifts every month as the outstanding balance reduces.
| Year of Loan | Monthly Interest Component | Monthly Principal Component | % EMI Going to Interest | Prepayment Value |
|---|---|---|---|---|
| Year 1-3 | Rs 36,000-37,000 | Rs 8,000-9,000 | 80% | Very high - each Rs 1L prepaid saves Rs 4-5x |
| Year 4-7 | Rs 31,000-35,000 | Rs 10,000-14,000 | 70% | High - strong compounding saving |
| Year 8-12 | Rs 22,000-30,000 | Rs 15,000-23,000 | 55% | Moderate - SIP may be better |
| Year 13-16 | Rs 11,000-21,000 | Rs 24,000-34,000 | 35% | Low - mostly paying principal anyway |
| Year 17-20 | Rs 2,000-10,000 | Rs 35,000-43,000 | 10-20% | Minimal - interest almost fully paid |
The practical implication: if you are in Years 1-7 of your loan, prepayment is at its most powerful. Every rupee of principal you reduce now removes it from the base on which future interest compounds. A Rs 5L prepayment in Year 2 at 9% saves approximately Rs 8.5L in total interest over the remaining tenure. The same Rs 5L prepayment in Year 17 saves less than Rs 1L. The amortisation schedule from the home loan EMI calculator shows your exact current interest-to-principal split before you decide.
The Snowball Effect: Why Prepayment Often Wins in the Long Run
The snowball effect is the single most important concept that every existing prepayment calculator gets wrong. When you prepay aggressively and close your loan early, you do not just save interest - you free up the full EMI amount, which you then redirect into SIP for the remaining years. This creates an outsized corpus in the final stretch.
Example: Rs 50L loan at 9%, 20 years, Rs 20,000/month surplus. Without prepayment, loan runs 240 months. With Rs 20K/month prepayment, loan closes in approximately 116 months (9.7 years). After that, Rs 64,986/month (EMI + surplus) goes into SIP for 124 months. At 11.2% post-LTCG return, this snowball SIP alone generates Rs 1.52 crore - more than a pure 240-month SIP of Rs 20,000/month (Rs 1.79 crore, but without accounting for the Rs 33L in extra interest paid in Strategy B).
Strategy A total benefit: Rs 33L interest saved + Rs 1.52 crore snowball = Rs 1.85 crore. Strategy B total: Rs 1.79 crore SIP corpus. Strategy A wins by Rs 5.8L at 9% rate. At 8.5%, Strategy B wins by Rs 0.4L - statistically a tie. This confirms the break-even in the 8.8-9% range. The full breakdown across 8.5%, 9%, 9.5% and 10% loan rates also covers the 60/40 split outcome at each rate step. The SIP corpus on Rs 20,000/month for 18 years at 12% is the baseline comparison against the snowball strategy.
Section 80C, Reduce EMI vs Tenure, and Lump Sum Timing
Section 80C: Does Prepayment Give You Tax Benefit?
Under the old tax regime, principal repayment (including prepayment) qualifies under Section 80C up to Rs 1.5L per year. If your 80C limit is already exhausted by ELSS, PPF contributions, insurance premiums, or children's tuition fees - prepayment gives zero additional tax benefit. If you have unused 80C headroom, prepayment of up to Rs 1.5L/year qualifies, reducing taxable income by that amount. At 30% slab, this is Rs 45,000 in annual tax savings - improving the effective return from prepayment. The exact tax saving in rupees at your income level and slab determines whether old regime still makes sense for you. Under the new regime (default from FY 2024-25), Section 80C deductions are not available, so prepayment has no tax benefit beyond the interest saving.
| Regime | 24b Interest Benefit | 80C Principal Benefit | Net Effect on Prepayment |
|---|---|---|---|
| New Regime (default) | None | None | Full loan rate = guaranteed saving |
| Old Regime, 30% slab, 80C full | Rs 60,000/yr savings on Rs 2L interest | None (limit exhausted) | Effective rate 6.3% on 9% loan |
| Old Regime, 30% slab, 80C headroom | Rs 60,000/yr on interest | Rs 45,000/yr on Rs 1.5L principal | Best case - both deductions available |
Always Reduce Tenure, Not EMI - Unless Cash Flow is Tight
When you make a prepayment, your bank will typically ask: reduce EMI or reduce tenure? Always choose reduce tenure, unless your monthly cash flow is genuinely strained. Reducing tenure keeps your monthly payment the same but closes the loan years earlier, triggering the snowball effect sooner. Reducing EMI gives you monthly cash flow relief but the loan runs just as long and saves far less total interest. On a Rs 50L loan at 8.75% with a Rs 5L prepayment: reducing tenure saves approximately Rs 8.2L in total interest - the full amortisation comparison before and after prepayment shows this clearly. Reducing EMI on the same prepayment saves only Rs 3.4L - less than half. The monthly EMI at any outstanding principal and rate shows you exactly how much your cash flow improves under each choice.
Lump Sum vs Monthly Prepayment - Which Has More Impact?
A Rs 3L lump sum prepayment in Month 1 saves more total interest than spreading the same Rs 3L as Rs 25,000/month over 12 months. This is because the lump sum reduces the outstanding principal immediately, and all future months' interest is calculated on a lower base. The 12-month spread means months 2-12 still accrue interest on the higher original balance. As a rule: deploy bonus money as immediate lump sum (not staggered) to maximise interest reduction. For monthly surplus, a systematic Rs X/month is equivalent to compounding the lump sum benefit over time - both are effective but target different cash flows. Use your bonus as an immediate lump sum and your monthly salary surplus as a recurring prepayment separately.
Why the Standard Prepayment vs SIP Advice Is Often Wrong
The "prepay if your loan rate is above 9.5%, invest otherwise" rule is based on a simple rate comparison. It ignores three factors that consistently flip the verdict for most Indian home loan borrowers.
Factor 1: The Snowball Effect Changes the Break-Even
When monthly prepayments close your loan early, the freed EMI amount does not disappear - it redirects into SIP for the remaining years. A Rs 46,000 EMI suddenly becoming a monthly SIP for 8-10 years creates a disproportionately large corpus. This is why prepayment beats SIP even at loan rates of 8.3-8.5%, well below the commonly cited 9.5% threshold. Most online calculators stop at "interest saved." This one adds the snowball corpus on top, which is where the real comparison happens.
Factor 2: Amortisation Stage Determines Prepayment Effectiveness
In a 20-year home loan at 9%, approximately 50% of the total interest is paid in the first 7 years. Prepayment in Year 2 saves Rs 4-5 for every Rs 1 of principal repaid. The same prepayment in Year 16 saves less than Rs 1.10. This is why the amortisation stage warning in the calculator matters - if you have less than 7 years remaining, the interest-saving case for prepayment is weak regardless of the rate comparison. If you have 12+ years remaining, you are in the interest-heavy zone where prepayment has maximum compounding impact. Your current month-by-month interest-to-principal split is visible in the amortisation schedule and is the single most useful input before any prepayment decision.
Factor 3: Section 24b Under Old Regime Redefines "Your Rate"
Under the old tax regime at 30% slab, Section 24b allows Rs 2L annual interest deduction on home loan interest for self-occupied property. On a 9% loan, this deduction saves Rs 60,000 in tax per year - reducing the effective cost of your home loan from 9% to approximately 6.3%. At 6.3% effective rate vs 11.1% post-LTCG SIP return, investing is better by 4.8 percentage points - no calculation needed. Under the new tax regime (default from FY 2024-25 onwards), Section 24b is not available - your full 9% is the guaranteed saving from prepayment, making it far more competitive. This is why the tax regime toggle changes the recommendation so dramatically. The new vs old regime comparison covers which regime makes sense at different income levels and whether switching back to old regime is worth it for the 24b benefit alone.