Flagship Decision Guide
Should You Prepay Your Home Loan or Invest the Surplus?
Direct Answer: If your expected long-term equity investment return (12% CAGR in mutual funds) exceeds your net effective home loan rate after Section 24(b) tax savings (approx. 6% to 8.5%), investing surplus cash builds higher total wealth. If market return assumptions drop below your loan rate, prepaying debt is superior.
Home loans are typically the longest financial commitment made by working Indians. Evaluating whether to prepay your loan or invest surplus cash requires balancing interest savings against compounding investment growth.
1. The Section 24(b) Tax Deduction Math
Under the Old Tax Regime, interest paid on self-occupied home loans is deductible up to ₹2,00,000 per year under Section 24(b) as per guidelines from the Income Tax Department of India. Prepaying your loan reduces interest paid, which lowers your tax deduction benefit if you fall in the 30% tax bracket.
2. Try the Live Calculator
Plug your exact numbers into our live interactive decision tool to calculate interest saved, tenure reduction, lost tax benefits, and break-even interest rate.