Home Loan Prepayment vs Mutual Fund SIP Calculator 2026
Model whether prepaying your loan saves more than investing surplus in equity SIPs
SIP generates ₹22.01 L MORE Wealth!
Investing surplus in a 12% equity SIP yields ₹22,00,745 MORE post-tax wealth than prepaying an 8.5% home loan.
Loan & Investment Parameters
Year-by-Year Loan Amortization & Wealth Accumulation Schedule
| Year | Standard Loan Balance | Prepaid Loan Balance | SIP Investment Corpus | Wealth Leader |
|---|---|---|---|---|
| Year 1 | ₹49.00 L | ₹47.76 L | ₹1.28 L | SIP (+₹1.28 L) |
| Year 2 | ₹47.92 L | ₹45.32 L | ₹2.72 L | SIP (+₹2.72 L) |
| Year 3 | ₹46.74 L | ₹42.66 L | ₹4.35 L | SIP (+₹4.35 L) |
| Year 4 | ₹45.46 L | ₹39.77 L | ₹6.18 L | SIP (+₹6.18 L) |
| Year 5 | ₹44.06 L | ₹36.62 L | ₹8.25 L | SIP (+₹8.25 L) |
| Year 6 | ₹42.54 L | ₹33.19 L | ₹10.58 L | SIP (+₹10.58 L) |
| Year 7 | ₹40.89 L | ₹29.47 L | ₹13.20 L | SIP (+₹13.20 L) |
| Year 8 | ₹39.09 L | ₹25.41 L | ₹16.15 L | SIP (+₹16.15 L) |
| Year 9 | ₹37.13 L | ₹20.99 L | ₹19.48 L | SIP (+₹19.48 L) |
| Year 10 | ₹35.00 L | ₹16.18 L | ₹23.23 L | SIP (+₹23.23 L) |
| Year 11 | ₹32.68 L | ₹10.95 L | ₹27.46 L | SIP (+₹27.46 L) |
| Year 12 | ₹30.15 L | ₹5.26 L | ₹32.23 L | SIP (+₹32.23 L) |
| Year 13 | ₹27.40 L | 🎉 Loan Paid Off! | ₹37.59 L | SIP (+₹37.05 L) |
| Year 14 | ₹24.41 L | 🎉 Loan Paid Off! | ₹43.64 L | SIP (+₹36.20 L) |
| Year 15 | ₹21.15 L | 🎉 Loan Paid Off! | ₹50.46 L | SIP (+₹35.23 L) |
| Year 16 | ₹17.60 L | 🎉 Loan Paid Off! | ₹58.14 L | SIP (+₹34.14 L) |
| Year 17 | ₹13.75 L | 🎉 Loan Paid Off! | ₹66.79 L | SIP (+₹32.91 L) |
| Year 18 | ₹9.55 L | 🎉 Loan Paid Off! | ₹76.54 L | SIP (+₹31.52 L) |
| Year 19 | ₹4.98 L | 🎉 Loan Paid Off! | ₹87.53 L | SIP (+₹29.96 L) |
| Year 20 | ₹101 | 🎉 Loan Paid Off! | ₹99.91 L | SIP (+₹28.21 L) |
Net Wealth Trajectory Over Time (Prepayment vs SIP)
Comparing accumulated financial wealth between early prepayment + post-loan SIP vs continuous mutual fund compounding.
Prepayment vs Mutual Fund SIP: Decision Framework
When to Choose Home Loan Prepayment
- High Interest Rate: If loan interest rate is above 9.0%–9.5% p.a.
- Risk Aversion: You prefer guaranteed, risk-free savings over market volatility.
- Peace of Mind: Emotional satisfaction and mental relief of being 100% debt-free.
- Job Volatility: If income is uncertain, eliminating fixed monthly EMIs reduces stress.
When to Choose Mutual Fund SIP
- Return Spread: Equity returns (12–14%) comfortably beat home loan rates (8.5%).
- Liquidity: Mutual fund investments can be partially redeemed in emergencies.
- Power of Compounding: Money invested early has 15–20 years of compounding growth.
- Tax Exemptions: You claim home loan interest deductions under Section 24b.
Frequently Asked Questions (FAQs)
The Prepayment vs SIP Matrix: Risk-Free Debt Clearance vs Compounded Equity Alpha
Deciding whether to prepay an 8.5% mortgage or systematically invest in mutual funds targeting 12% returns is fundamentally a study in cost of capital versus expected rate of return. While prepayment delivers a psychological dividend and guaranteed interest savings, equity SIPs maintain liquidity and leverage the historical 3.5% equity risk premium.
Prepayment: Guaranteed & Tax-Free
Every rupee redirected into home loan principal earns a guaranteed yield identical to the loan borrowing rate (8.5%). There is zero market volatility, zero capital gains tax liability, and complete psychological peace of mind.
SIP: Liquidity & Wealth Multiplication
Equity compounding historically outpaces borrowing costs over 10–15 year horizons. Crucially, mutual funds remain highly liquid, allowing you to access funds during emergencies without having to refinance your home.
Prepayment vs SIP Decision Framework FAQs
Key mathematical and behavioral considerations for smart homeowners.
Which strategy yields a higher net worth after 15 to 20 years?
Historically, running a parallel equity SIP produces a significantly higher terminal net worth due to the compounding spread between equity indices (~12%) and home loan interest (~8.5%), even after accounting for LTCG tax.
What is the blended "Hybrid 50:50 Strategy"?
Many disciplined investors split their investable surplus 50/50: dedicating half toward periodic loan prepayments for steady debt reduction, and channeling the other half into equity SIPs to cultivate long-term liquid wealth.
Does home loan tax relief under the Old Regime favor SIP over prepayment?
Yes. If you claim Section 24(b) deductions (up to ₹2 Lakhs) and Section 80C principal benefits under the Old Regime, your effective net borrowing rate drops to roughly 6.0% to 6.5%, widening the advantage of investing in equity.
Should I prepay my mortgage if interest rates spike above 9.5%?
When mortgage interest rates climb into double digits, the guaranteed return of prepayment becomes extremely competitive relative to equity risk premiums. Accelerating principal payments during elevated rate cycles is highly rational.
What happens if equity markets experience a prolonged bear cycle?
Unlike loan interest which is predictable, equities carry short-term drawdowns. If your investment horizon is under 5 years, prepayment is mathematically safer. For horizons exceeding 10 years, equities have historically rewarded patient investors.