Home Loan Prepayment vs. SIP Investment Calculator: Which is Better?
This calculator is designed to solve the ultimate personal finance dilemma: “Should I use my extra savings to pay off my home loan early, or should I invest that money in a Mutual Fund SIP?”
🏠 Home Loan Details
📈 Monthly Surplus
Strategy A: Surplus clears loan first, then total invest.
Strategy B: Surplus for SIP from Day 1.
Comparison Result
Calculating…
Strategy A Wealth
₹0Strategy B Wealth
₹0| Year | Strategy A: Prepay First | Strategy B: Parallel SIP | Status (A) |
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Unlike basic calculators, this tool compares two sophisticated financial paths:
- Strategy A (The Prepayment Path): This strategy focuses on clearing your debt first. You use your monthly surplus to reduce your principal. Once the loan is fully paid off, the tool assumes you redirect your entire original EMI plus the surplus into a SIP for the remainder of the period.
- Strategy B (The Parallel Investment Path): This strategy keeps the loan running for its full tenure while you invest your monthly surplus into a SIP from Day 1.
The tool calculates the final wealth accumulated at the end of the original tenure for both paths, allowing you to see the “Opportunity Cost” of your money.
Frequently Asked Questions (FAQ)
What is the “Snowball Effect” mentioned in Strategy A?
The Snowball Effect happens when you finish your loan early. Since you no longer have to pay a bank EMI, you can redirect that large sum into investments. Because you are now investing a much larger amount, your wealth can grow rapidly in the final years.
Which strategy usually wins?
Generally, if your expected SIP return (e.g., 12-15%) is significantly higher than your home loan interest rate (e.g., 8-9%), Strategy B (Parallel SIP) often results in higher wealth. However, if interest rates are high or market returns are low, Strategy A (Prepayment) becomes more attractive.
Should I consider tax benefits?
Generally, if your expected SIP return (e.g., 12-15%) is significantly higher than your home loan interest rate (e.g., 8-9%), Strategy B (Parallel SIP) often results in higher wealth. However, if interest rates are high or market returns are low, Strategy A (Prepayment) becomes more attractive.
Should I consider tax benefits?
Yes. This calculator focuses on pure mathematical growth. In reality, home loans provide tax benefits under Section 24(b) (interest) and 80C (principal). If you are in the 30% tax bracket, your “effective” loan interest rate is actually lower, which might make Strategy B (investing) even more beneficial.
Is it always better to be debt-free?
Mathematically, no—sometimes “cheap debt” allows you to build more wealth in the market. However, psychologically, being debt-free provides immense peace of mind. Use this tool to see exactly how much that “peace of mind” might cost you in potential returns.
What market return rate should I assume?
For long-term equity investments in India (10+ years), a conservative estimate is 12%, while a more optimistic one is 14-15%. It is always safer to test your results with a lower return rate to see if the strategy still holds up.
