Prepay home loan or invest in a SIP? Find your break-even
On a ₹40 lakh loan at 8.5%, a SIP must earn about 9.1% a year to beat prepaying. See the break-even, the net-worth race, and how the old regime moves it.
7 min read
You have a home loan and ₹20,000 left over each month. Put it into the loan and be debt-free sooner, or start a SIP and let it grow?
With the RBI's repo rate held at 5.25% through mid-2026[1][2], most floating home loans sit between 7.25% and 9%. That rate is exactly what your SIP has to beat. Here's how much, worked out with our prepay-or-invest calculator.
Two ways to use the same ₹20,000
Both paths spend exactly the same cash every month: the EMI plus ₹20,000. That's what makes the comparison fair.
- Prepay: the ₹20,000 goes into the loan. It closes in 7 yrs 8 mo instead of 15 years. From then on the whole EMI plus the ₹20,000 goes into a SIP until year 15.
- Invest: the loan runs its full term, and the ₹20,000 goes into a SIP from month one.
Prepaying saves ₹16.35 L of interest. Investing starts compounding earlier. Which one wins depends on one number: the SIP's return.
The break-even return
Figure 1 from the Prepay vs SIP calculator
Every SIP return from 4% to 18%: which choice ends richer after 15 years
How to read it
- 1The blue part is where prepaying ends richer: any SIP return below 9.1%. The teal part is where investing does.
- 2The ring is the 12% return assumed here. Hover or tap along the strip to see by how much each side wins at any rate.
Why is the break-even above the 8.5% loan rate? Two reasons.
- Prepaying is a sure return. Every rupee prepaid saves 8.5% interest, with no market risk and no tax on it.
- SIP gains are taxed. Equity fund gains pay 12.5% LTCG (plus cess) above ₹1.25 lakh a year when you sell[3], so the SIP needs a bit more to end level.
The net-worth race
Figure 2 from the Prepay vs SIP calculator
Net worth over 15 years: loan owed subtracted, SIP counted after tax
- Invest the ₹20,000
- Prepay with the ₹20,000
How to read it
- 1Prepaying closes the loan after 7 yrs 8 mo. Up to here the two lines run close: each prepaid rupee cuts the loan about as fast as the SIP grows.
- 2After that the investing line pulls away, because its SIP has been compounding since month one: ₹7.82 L ahead by year 12, ₹12.4 L at the end (the labels on the right). Below 9.1% the two lines would swap places.
| SIP return | Invest | Prepay | Better choice |
|---|---|---|---|
| 8% | ₹65.45 L | ₹69.09 L | Prepay |
| 10% | ₹77.56 L | ₹74.38 L | Invest |
| 12% | ₹92.64 L | ₹80.23 L | Invest |
| 14% | ₹1.11 Cr | ₹86.72 L | Invest |
A return of 12% is not guaranteed. Over any 15-year stretch, Indian equity funds have often done 10–13% a year, but with years of −20% in between. The closer your realistic return is to the break-even, the stronger the case for prepaying.
Try it with your numbersPrepay or Invest?Put in your own loan balance, rate and surplus. The strip shows your break-even straight away.
You don't have to pick one
The calculator also compares a 50/50 split: half the surplus to the loan, half to a SIP. Many people do this for peace of mind. They cut the loan's tenure while still building an investment pot.
Before either, check two things:
- Emergency fund first. Money prepaid into a loan is hard to get back. Keep 6 months of expenses liquid.
- Costly debt first. A credit card or personal loan at 14–42% beats both options.
If you have a lump sum rather than a monthly surplus, the lumpsum planner works through the whole order. To see how prepayment alone shortens your loan, try the home loan prepayment calculator.
What this doesn't mean
- Floating rates move. If your loan rate rises, the break-even rises with it. Rerun the numbers when the RBI changes the repo rate.
- Returns are an average. A bad decade for markets can put prepaying ahead even if the long-run return is above break-even.
- Peace of mind counts. Being debt-free has a value the maths doesn't capture.
Both paths spend the same cash each month; SIP returns compound monthly and are taxed at 12.5% LTCG plus cess above ₹1.25 lakh when counted. New regime, so no 24(b) deduction unless stated. For illustration only, not investment advice. Repo rate: RBI monetary policy, June 2026.
Sources
- [1]RBI keeps repo rate unchanged at 5.25% in June 2026 (opens in a new tab)Indian Pay Calculator · Jun 2026
- [2]Monetary policy statements (opens in a new tab)Reserve Bank of India
- [3]Union Budget 2024-25: Budget speech (capital gains: 12.5% LTCG, ₹1.25 lakh exemption, 20% STCG) (opens in a new tab)Ministry of Finance, Government of India · 23 Jul 2024