Rethinking Home Loan Prepayment

Is paying off your home loan early always the smartest move? Not necessarily — and here’s why a thoughtful approach may serve you better.

🧾 The Scenario

Avantika (name changed), a team lead in a dual-income household, earns a CTC of over ₹25 lakhs. Five years ago, she and her spouse took a ₹60 lakh home loan with a 15-year tenure when they purchased their home.

During a recent financial planning session, Avantika expressed a strong desire to become loan-free as early as possible. She cited the emotional stress of carrying debt and the appeal of saving on interest payments.

Her instinct? Use surplus income to aggressively prepay the loan.

💭 The Assumption

Like many homeowners, Avantika believed that prepaying the loan would:

• Eliminate financial liabilities

• Save significant interest over the long term

• Free up more money for future goals

But is that always the best financial decision?

🔍 What the Numbers Revealed

When we reviewed Avantika’s loan amortization schedule, we discovered some key insights:

• Most of the interest had already been paid in the first five years — a common feature of amortized loans

• The interest component was now declining, while principal repayment was accelerating

• The interest rate was relatively low, and Avantika was availing of tax benefits under Section 24

🚩 The Key Insight

Prepaying the home loan at this stage would not lead to significant savings. With the high-interest portion already paid off, the benefits of prepayment had diminished.

Instead, there was a more effective strategy available.

✅ The TrueX Approach

We recommended that Avantika:

1. Continue with the current loan:Take advantage of the low cost of capital and the ongoing tax deductions.

2. Invest the surplus:Redirect surplus income into goal-based investments such as mutual funds, equity, or PPF. These avenues offered the potential for higher long-term returns compared to the interest saved by prepaying the loan.

💡 The Takeaway

Being debt-free feels good — but financial decisions shouldn’t be driven by emotion alone. It's crucial to evaluate:

• The cost of debt

• Potential returns on investments

• Your long-term goals and liquidity needs

At TrueX, we help clients see the bigger picture. Sometimes, staying the course with a home loan — and investing surplus funds wisely — is the more rewarding path to financial freedom.

💡 Facing a similar dilemma? At TrueX, we help professionals make smarter, stress-free financial decisions. Let's talk.