Chapter Four
Cancel your home loan with an SIP
A small parallel SIP beats prepayment
The short version
An SIP of roughly a sixth of your EMI, run for the same tenure, can return every rupee the loan will ever cost you.
The number nobody quotes you
A home loan does not cost what the loan says it costs.
Take a real example: ₹42 lakh outstanding, at 7.9%, with 27 years left to run. The EMI is about ₹31,396 — perfectly manageable, which is exactly the point of stretching the tenure.
Over those 27 years you will hand the bank ₹1.02 Cr. Of that, ₹59.72 L is interest — you are paying for the house roughly two and a half times over. Nobody says this out loud at the sanction meeting, and the amortisation schedule is a spreadsheet nobody opens.
Borrowed
₹42 L
EMI
₹31,396
Interest over 27 years
₹59.72 L
Total handed over
₹1.02 Cr
The hack
Run a small SIP for exactly as long as the loan runs.
The loan is linear. It charges a fixed rate on a shrinking balance and cannot accelerate. An SIP compounds. Over a long enough tenure, the compounding side does not just close the gap — it overtakes the entire repayment schedule.
At a 12% assumed return, an SIP of ₹2,762 a month for the same 27 years grows into ₹59.72 L — cancelling every rupee of interest the bank will charge you.
Push it to ₹4,704 a month — about 15% of the EMI itself — and the SIP returns ₹1.02 Cr, which is the entire repayment. Principal, interest, all of it. The house ends up costing you the twenty-seven years of discipline and nothing else.
Loan recovery calculator
Loan outstanding
This is the assumption the whole hack rests on. Move it and watch.
Your EMI
₹31,396
Interest to the bank
₹59.72 L
Total you will pay
₹1.02 Cr
Over
324 months
To cancel the interest
₹2,762
a month, for 27 years. Grows into ₹59.72 L — the entire amount the bank charged you for the privilege.
To cancel the whole loan
₹4,704
a month — about 15% of your EMI. Grows into ₹1.02 Cr, matching every rupee of EMI you will ever pay.
The straight line is the bank. The curve is the SIP.
Hover the chart for any year
For most of the loan the SIP looks hopeless. At the halfway mark, year 14, you have handed the bank ₹52.75 L and the fund holds only ₹19.45 L — 37% of it. By year 19 it is still only 53%. The entire remaining gap closes in the final years, because that is where compounding lives. Nothing changed about the loan — the SIP did all of this on its own.
The decision you actually face
Same spare money. Prepay the loan, or run an SIP?
Both paths are measured at the same date and cost the same each month. Prepayment is credited fairly: once the loan closes early, the freed-up EMI goes into the fund for the remaining years.
Prepay the loan
- Loan closes in
- 18.2 yrs
- Years bought back
- 8.8
- Interest avoided
- ₹22.63 L
- Interest still paid
- ₹37.09 L
- Corpus from freed EMI
- ₹66.65 L
- Net position
- ₹29.56 L
Let the loan run, invest instead
Ahead- Loan closes in
- 27.0 yrs
- Years bought back
- 0.0
- Interest avoided
- ₹0
- Interest still paid
- ₹59.72 L
- Corpus from the SIP
- ₹1.08 Cr
- Net position
- ₹48.39 L
The break-even
At the assumptions above, the two paths are identical if the fund returns 10.6% a year. Below that, killing the loan wins. Above it, investing does — today by ₹18.84 L.
Note what the break-even is close to: your loan rate. That is not a coincidence — prepaying earns you exactly the interest you avoid, with no risk and no volatility. The SIP has to beat that rate to be worth the uncertainty, which over twenty-plus years it usually has. Over five, far less reliably. And a paid-off house helps you sleep in a way a spreadsheet cannot price.
Read this before you act on it
Four things the hack does not tell you.
It is arithmetic, not a guarantee
The loan rate is contractual. The 12% is an assumption. If equities deliver 8% over your particular 27 years — which has happened over plenty of 27-year windows in other markets — the SIP recovers far less than the whole loan. Drag the return slider down and watch how fast the conclusion changes.
Your loan rate is probably floating
Most Indian home loans reprice with the repo rate. If yours goes from 7.9% to 9.5%, both your EMI and your total interest rise while the SIP assumption stays where it was. Rerun the numbers whenever your rate resets.
The tax is not in these figures
You will owe capital gains when you redeem, at 12.5% on equity gains above the annual exemption. On a corpus of this size that is a real amount. Redeeming across financial years rather than in one go uses the exemption more than once.
A paid-off house is worth something a spreadsheet cannot price
If the prospect of carrying debt into your fifties keeps you awake, prepaying is the right answer even when it is the mathematically worse one. Financial plans that ignore how you sleep do not survive contact with a bad year.
The bigger point
This is not really about home loans.
The reason a ₹4,704 SIP can swallow a ₹1.02 Cr obligation is not clever product selection. It is that 27 years is long enough for compounding to do something that looks impossible at the start.
The same arithmetic applies to a car loan, an education loan, or a future expense you already know is coming. Run the amount you owe through the calculator above with the correct tenure, and the monthly commitment usually turns out to be smaller than you feared — provided you start now and do not interrupt it.
And note the one thing this chapter quietly assumes throughout: that you keep paying for twenty-seven years without stopping. That assumption is doing more work than the 12% is. The next chapter is about why almost nobody manages it.
The worked example follows the case discussed in the source conversation. EMI figures use the standard reducing-balance formula with a nominal monthly rate, as banks compute them; SIP figures use an effective monthly rate derived from the annual return, as CAGR and XIRR are quoted. Both are in lib/finance.ts.