Should you prepay you home loan or invest.

🏡💸 Prepay Your Home Loan or Invest?

Here’s How to Use Bonuses & SIPs the Smart Way

Every year when that bonus or incentive hits your account, a question comes up:

"Should I use this money to prepay my home loan or should I invest it?"

It’s a tricky one — emotionally, prepaying a loan feels safe. But financially, investing might give better returns.

So what’s the smarter move?

Let’s break it down 👇

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🔍 First, Understand the Basics

Let’s say your home loan:

• Interest rate = 8% per annum
• Remaining tenure = 15 years
• Bonus amount = ₹2 lakhs

Now you have two options:

• Use that ₹2L to reduce your loan (and save interest)
• Invest the ₹2L (and potentially earn higher returns)

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🧠 Option A: Prepay Your Home Loan — The Safe Bet

✅ When it makes sense:

• You’re paying an interest rate above 9%
• You’re nearing retirement and want zero liabilities
• You already have emergency funds and insurance
• You don’t have the stomach for market ups and downs

📉 Result: Prepaying early in the loan saves a lot more interest compared to doing it later. That’s because in the first few years, your EMI goes mostly toward interest.

Example: ₹2L prepayment in year 5 could save ₹3–4L in future interest and shorten your loan by 2–3 years.

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📈 Option B: Invest — The Growth Bet

✅ When it makes sense:

• Your loan interest rate is below 8.5%
• You’ve got 15+ years of time before retirement
• You’re comfortable with moderate risk
• You want to create wealth, not just cut debt

Now imagine:

You invest ₹2L in a mutual fund SIP that gives you an average return of 12% per annum.

After 15 years → your ₹2L could grow to ₹10.9L 💥

Compare that to the ₹3–4L you would’ve saved on interest. That’s a net gain of ₹6–7L just by staying invested.

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💡 Bonus Strategy: Recover Your Home Loan Interest via SIPs

Here's a smart combo move:

Step 1: Continue making your EMI payments as usual.

Step 2: Invest 10% of your EMI through SIP along with the EMI

🎯 Goal: Use SIPs to build a parallel fund that matches the interest cost of your loan, or even exceeds it.

This way, your wealth grows AND you stay liquid.

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⏱️ When is the Right Time to Prepay?

The earlier you do it, the bigger the impact.

Here’s a general rule:

• First 4-6 years: Great time to prepay — most of your EMI is going toward interest
• Last few years: Prepayment makes less sense — most EMI goes toward principal

🛑 But NEVER prepay at the cost of:

• Emergency funds (at least 6 months of expenses)
• Term & health insurance
• Long-term goal-based investments

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🚦 So, What Should You Do?

Situation	Best Action
High loan interest, low risk appetite	Prepay loan
Low interest, long time horizon, moderate risk	Invest in SIPs
Bonus income with no urgent goals	Part prepay + Part invest
Close to retirement	Focus on reducing liabilities
High EMI pressure	Reduce tenure through prepayment

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✅ Final Verdict: Strike a Balance

Don’t think of it as either-or. Use every windfall — bonus, incentive, tax refund — wisely:

🔹 Use a part to prepay (free your future)

🔹 Use a part to invest (build your future)

🔹 And always, keep enough liquidity (protect your present)

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Need Help With a Strategy?

At Prospera Wealth, we create customized loan-investment strategies based on your income, risk profile, and life goals.

📞 Call: 7030651651

📩 Email: info@prosperawealth.in

🌐 Visit: www.prosperawealth.in

Let’s turn your bonus into a real financial boost — not just a temporary feel-good.