Prepay the loan, or invest the money?
Nobody can tell you what the market will return. What CAN be computed is the bar: the after-tax return your investment must beat for investing to have been the better call — including the tax subtlety most get wrong.
Earn more than this after tax and investing would have come out ahead; less, and prepaying would have.
The rule of thumb — and exactly when it breaks
The advice you'll hear everywhere: "prepay if your loan rate beats the return you'd earn investing — and if it's a home loan on the old regime, discount the rate by your tax slab first." So a 9% home loan for someone in the 30% bracket "really" costs 6.3%, and any investment expected to beat 6.3% should win.
That discount is correct only while your Section 24b interest deduction stays under the ₹2,00,000 cap for a self-occupied house. A ₹30–50 lakh loan at today's rates pays ₹2.7–4.4 lakh of interest a year — far past the cap. Prepay such a loan and you still claim the full ₹2,00,000 afterwards; the interest you saved was earning you no tax relief at all. The discount shouldn't be applied, and the honest bar sits near the full loan rate.
Prepayment charges: mostly a thing of the past
The RBI's Pre-payment Charges on Loans Directions, 2025 bar charges on floating-rate loans to individuals for non-business purposes — home, education and personal loans alike — with no lock-in and regardless of where the money comes from, for loans sanctioned or renewed on or after 1 January 2026. Fixed-rate loans and older agreements can still carry a charge, so check your sanction letter — and if a charge is levied on a loan that qualifies, ask for it back. (Directions text)
What the number can't tell you
The break-even treats a market return and a loan's interest saving as interchangeable. They aren't: the loan saving is guaranteed, the market return is not. A 12% expected equity return that beats an 8.2% bar on paper still arrives with years where it's −15%. If the loan keeping you up at night is worth more to you than the spread, that's not irrational — it's a preference the arithmetic can't price.