The Rate Cut Context
Following RBI's 50bps of cuts in early 2026, floating home loan rates have settled at 8.25–8.75% for well-scored borrowers. The effective post-tax cost for those claiming 80C and Section 24 deductions is closer to 6–7%.
The Investment Side
Diversified equity mutual funds have delivered 12–13% CAGR over the past 15 years. Debt funds and FDs currently yield 7–7.5%. This means the spread between home loan cost and equity return is meaningful.
A Practical Decision Rule
If your loan rate (post-tax) is below 7%, invest surplus money in equity for long-term goals. If your loan rate exceeds 7%, prepaying becomes more competitive — especially if you are within 5 years of the loan end, where interest savings are smaller. Emotional comfort with being debt-free is also a legitimate factor — don't ignore it in the calculation.