Home Loan Prepayment vs SIP: Where Should You Put Extra Cash?
July 21, 2026 • 7 min read
When you receive an annual bonus or have extra disposable income, you face a common financial dilemma: Should you prepay your high-value home loan or start a Systematic Investment Plan (SIP)?
Comparing Rates: Loan Cost vs. Investment Yield
1. Home Loan Interest Rate: Typically ranges between 8.25% and 9.50% per annum.
2. Equity Mutual Fund Returns: Historically deliver average long-term returns between 12% and 14% over 7+ year horizons.
If your investment return (12%) comfortably beats your loan interest rate (8.5%), mathematically, keeping the loan active while investing excess cash yields a higher net worth.
The Power of Reducing Tenure
Use our EMI Calculator to test your home loan amortization schedule.
Making even one extra EMI payment toward your loan principal every year can cut a 20-year home loan tenure down by almost 4 years, saving lakhs in cumulative interest payments.
The Hybrid 'Earn Back Your EMI' Strategy
A popular financial strategy is starting a parallel monthly investment equal to 10% to 15% of your loan EMI into an equity fund using a SIP Calculator. Over a 15-year tenure, the accumulated wealth often offsets the entire interest paid to the bank!