Is pre-paying home loan a better option?

This is the dilemma everyone faces often….whether to pre-pay a home loan if one has surplus money.

Home loan or Housing loan is one of the cheapest loans. Cheapest w.r.t the interest charged on the loan. Currently, many banks and financial institutions are offering home loans @ 10.15% p.a. which is cheaper than other loans viz. personal loan, car loan, business loan etc.,

So, if housing loan is the cheapest one, should we pre-pay the loan or continue EMI payment upto original loan tenure.

Suppose, you received a bonus of Rs. 1 Lakh from your employer. Now, you have the option to pre-pay the loan. If I say that you can invest this money to earn a return of 15% p.a, will you invest or pre-pay the loan which costs you interest of 10.15% p.a.

15% investment returns Vs 10.15% interest on Home loan

Obvious thing to do is to invest the money and earn 15% instead of pre-paying a loan where interest rate is just 10.15% p.a.

Here comes the question, which financial product gives 15% return p.a. Look at the table below, to find the answer. These are few mutual funds which have given return way above 15% quoted in above example.

SO, WILL YOU EVER PRE-PAY A HOME LOAN OR INVEST THE SURPLUS MONEY FOR HIGHER INVESTMENT RETURNS??

Scheme name

P.A returns
in last 3 years

P.A returns
in last 5 years

P.A returns
in last 10 years

ICICI Prudential Value Discovery Fund

29.72

17.18

19.31
HDFC Mid-cap opportunities fund

30.39

18.34

Religare Invesco Mid N Small Cap fund

31.55

17.3

SBI Magnum Mid-cap fund

37.48 18.18

15.54

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