Prepay or invest? The honest math on your extra cash

You have some spare cash: a bonus, a maturing deposit, a windfall. Should you throw it at your home loan, or invest it for a higher return? The honest answer starts with a comparison, but it does not end there.

The pure-maths starting point

Prepaying a loan gives you a guaranteed, risk-free return equal to your loan’s interest rate. If your home loan is at 8.5%, every rupee you prepay “earns” you 8.5%, with zero risk. To beat that by investing, you need a confident, after-tax return above 8.5%, which is far from guaranteed.

Where it stops being pure maths

• Peace of mind. For many people, being debt-free years earlier is worth more than a slightly higher expected return. That is a real, valid preference.
• Liquidity. Money prepaid into a loan is hard to get back. An emergency fund must come first. Never prepay your safety net away.
• Discipline. A prepayment is certain. An investment plan only works if you actually stick to it.

A practical middle path

Many borrowers do both: keep a solid emergency fund, make periodic prepayments to shorten the tenure, and invest the rest. Even a modest extra amount each month, or one prepayment a year, can take years off your loan.

Our prepayment planner shows you exactly how much tenure and interest a lump sum or a little extra each month would save, so you can weigh the guaranteed benefit against your other goals, and then decide. Our thinking; your call.