Mint compares home-loan prepayment with SIP investing for borrowers

Mint’s analysis, written by Devansh Sharma, Deputy Editor at Mint Digital, uses a sample borrower to compare two common choices: pay a home loan faster, or keep the EMI unchanged and invest the surplus. The article’s central point is that the answer changes with timing, return assumptions, tax impact and household liquidity.

How the loan side works

In a typical Indian home loan, each EMI contains interest and principal. The interest is calculated on the outstanding balance, not on the original loan amount for the full term. That is why early changes can matter more: a higher payment in the early years cuts the balance on which later interest is computed. Mint’s example takes a ₹1 crore loan for 25 years at 9%, with an EMI of ₹83,920.

In the prepayment path described by Mint, Aman increases the EMI after five years and shortens the remaining period to 10 years. This means the loan is fully repaid in 15 years. He then invests the amount that would otherwise have gone towards EMI through SIPs for the next 10 years. Mint put the combined effect of interest saved and investment return at ₹1.81 crore.

Why investing can still compete

Mint also examined the alternative of investing the additional amount rather than raising the EMI. On the assumptions used in the article, that path could deliver a net benefit of ₹1.8 crore to ₹2.12 crore. It added that investing a slightly higher sum may create about ₹30 lakh of extra benefit. This is why the comparison is sensitive to market returns and the exact surplus available each month.

• Earlier EMI increases, especially within five years, can make prepayment more rewarding in the example.
• Early closure of the loan may reduce the borrower’s ability to claim the home-loan interest deduction under Section 24(b).
• Mutual fund returns are not tax-free; gains can be taxed under the capital gains rules.
• Liquidity remains important because prepayment is not as easily reversible as stopping or reducing fresh investments.

What the expert view adds

Mint cited Suresh Sadagopan of Ladder7 Financial Advisories as stressing liquidity. His view, as reported, favours using annual bonuses for prepayments and considering investments for the extra monthly amount instead of simply increasing the EMI. For property owners, that distinction matters: a bonus prepayment reduces debt without permanently raising the monthly cash commitment.