Home Loan Prepayment vs Mutual Fund Investment Calculator

Use this free online calculator to compare the benefits of prepaying your home loan versus investing the same amount in mutual funds. Find out which strategy helps you achieve better long-term financial outcomes based on your loan rate, investment returns, and time horizon.

Home Loan Prepayment Decision Calculator (India)

Loan & Investment Details Loan Balance (₹) Annual Interest Rate (%) Time Left (Years) One Time Prepayment/MF Investment (₹) Annual Prepayment/MF Investment (₹) Expected MF Annual Return (%) (Used as Discount Rate for NPV)

Tax & Borrower Details Number of Borrowers (Max 2) Borrower 1 Loan Split (%) Borrower 1 Marginal Tax Rate (%) Borrower 1 Tax Regime Borrower 2 Marginal Tax Rate (%) Borrower 2 Tax Regime

Scenario Comparison

Click "Calculate & Compare" to see the results.

Loan Amortization

Year	Loan Left	Principal Repaid	Interest Paid	Tax Savings	MF Corpus

To choose best mutual funds for prepayment of loan:

Net Present Value (NPV) Comparison

NPV is calculated over the full original term of the loan, using the Expected MF Return as the discount rate. A higher (less negative) NPV is better.

Scenario	Net Present Value (₹)	Optimal Decision

If you found this useful, check out the Arthgyaan step-up SWP calculator

How to Use the Home Loan Prepayment vs Mutual Fund Investment Calculator

This tool helps you decide whether you should prepay your home loan or invest the same money in mutual funds. It compares both scenarios based on your loan details, investment assumptions, and tax benefits.

1. Understanding the Calculator

This calculator models two financial strategies:

Option 1: Prepay your home loan using one-time and/or annual extra payments
Option 2: Invest the same amounts in mutual funds, assuming a certain annual return. Here you do not prepay.

The calculator then compares outcomes like:

Loan interest saved
Total investment corpus built in mutual funds
Net Present Value (NPV) of each strategy

NPV is calculated using your expected mutual fund return as the discount rate - a higher (less negative) NPV means a better decision. Read more about NPV and it’s use for financial decision-making here: How Net Present Value (NPV) Can Help You Make Smarter Financial Decisions

2. Input Parameters

Loan & Investment Details

Field	Description	Example
Loan Balance (₹)	Current outstanding home loan amount	`50,00,000`
Annual Interest Rate (%)	Current loan rate of interest	`7.5`
Time Left (Years)	Remaining loan tenure	`10`
One-Time Prepayment / MF Investment (₹)	Lump sum amount available for prepayment or investment	`5,00,000`
Annual Prepayment / MF Investment (₹)	Additional yearly amount available for prepayment or SIP investment	`1,00,000`
Expected MF Annual Return (%)	Anticipated annualized return from mutual fund investments (used as discount rate for NPV)	`12`

Tax & Borrower Details

Field	Description	Example
Number of Borrowers (Max 2)	Number of co-borrowers claiming tax benefits	`2`
Borrower 1 Loan Split (%)	Share of loan held by Borrower 1	`50`
Borrower 1 Marginal Tax Rate (%)	Tax bracket of Borrower 1	`30`
Borrower 1 Tax Regime	Choose between Old (with benefits) or New (without benefits)	`Old`
Borrower 2 Marginal Tax Rate (%)	Tax bracket of Borrower 2	`20`
Borrower 2 Tax Regime	Old or New tax regime	`Old`

3. Running the Calculator

Enter your loan, investment, and tax details in the input fields.
Click “Calculate & Compare”.
The calculator will display:
- A summary comparison of both strategies
- A loan amortization table, showing yearly principal, interest, and tax benefits
- A Net Present Value (NPV) table comparing the overall outcomes

4. Understanding the Results

Scenario Comparison

Shows how much total interest you save by prepaying
Displays how much wealth you could build if you invest instead

Loan Amortization Table

Column	Meaning
Year	Year of loan repayment
Principal Remaining (₹)	Outstanding loan balance after each year
Principal Repaid (₹)	Amount of loan principal paid that year
Interest Paid (₹)	Annual interest cost
Tax Benefit (₹)	Tax deduction based on borrower regime and rates
MF Corpus (₹)	Value of mutual fund investment over time

NPV Comparison Table

Column	Meaning
Scenario	Either “Prepay Loan” or “Invest in MF”
Net Present Value (₹)	Value of each option discounted at MF return rate
Optimal Decision	Indicates which strategy gives a higher financial benefit

5. Interpreting Your Decision

If Prepayment NPV is higher (less negative), prepaying the loan is more beneficial.
If Investment NPV is higher, investing the surplus in mutual funds provides better long-term returns.
Consider adjusting the expected MF return and tax regime to reflect your realistic expectations and risk appetite.

6. Example Scenario

Suppose you have:

Loan balance: ₹50,00,000
Interest rate: 7.5%
Time left: 10 years
One-time surplus: ₹5,00,000
Annual extra: ₹1,00,000
MF expected return: 12%
Borrowers: 2 (Old regime, 30% and 20% tax brackets)

Result: The calculator will show two NPV values - one for prepayment and one for investment. If the “Invest in MF” NPV is higher, you are financially better off investing rather than prepaying.

7. Notes and Assumptions

NPV uses the mutual fund return as the discount rate.
EMI savings from prepayment are assumed to be invested at the same MF rate.
Tax benefits under Section 24(b) and 80C apply only in the old tax regime.
The model assumes constant interest and return rates throughout the period.

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