The core idea
Prepaying earns you a guaranteed return equal to your loan's interest rate. Investing earns an expected but uncertain return. So the comparison is really: loan rate (guaranteed) vs expected investment return (after tax, with risk).
How the tax angle shifts it
| Factor | Effect |
|---|---|
| Old regime, Section 24(b) | Deduct up to ₹2L interest → lowers your effective loan rate → favours investing |
| New regime (no 24(b)) | Loan costs its full rate → favours prepayment |
| Equity LTCG tax (12.5% over ₹1.25L) | Trims net SIP returns → slightly favours prepayment |
Rules of thumb
- Prepay when the loan rate is high (9%+), you're early in the tenure (interest-heavy EMIs), or you value a guaranteed, stress-free return.
- Invest when the loan rate is low (≤8.5%), you have a 10+ year horizon, and can stomach market swings.
- Hybrid (what most planners suggest): split it — e.g. annual bonus toward prepayment, monthly SIP running in parallel.
Decided to prepay? Use the prepayment calculator to see whether to reduce EMI or tenure. Want to clear it fully? Foreclosure is penalty-free on floating-rate home loans.
General information, not financial advice. Last updated June 2026.