Prepaying your home loan? This Rs 3L mistake could cost you over Rs 30L in lost wealth

For many Indian homeowners, prepaying a loan feels like a win. But fintech founder Dwipa Shah argues that treating debt as a tool—not a burden—could unlock far greater long-term wealth.

In a LinkedIn post, Shah broke down four approaches to handling home loan debt using a scenario familiar to many middle-class professionals: a ₹25 lakh outstanding loan, 20 years left to pay, ₹3 lakh in surplus cash, and no tax benefit under the new regime.

Option 1: Prepay ₹3 lakh to reduce the EMI. The monthly burden drops by ₹2,509, and interest savings amount to ₹3.02 lakh over 20 years. It feels safer—but doesn’t grow wealth.

Option 2: Prepay ₹3 lakh, reduce EMI, and invest the ₹2,509 saved every month into a mutual fund SIP. After 20 years, that investment could grow to ₹28 lakh. Debt falls, and wealth rises—a balanced, growth-focused strategy.

Option 3: Prepay ₹3 lakh but keep the EMI unchanged. This shortens the loan tenure from 20 to 16 years and saves ₹9.42 lakh in interest. Ideal for those prioritising debt freedom over maximising returns.

Option 4: Don’t prepay the loan at all. Invest the ₹3 lakh lump sum directly into mutual funds at an assumed 13% annual return. In 20 years, the amount compounds to ₹34.5 lakh—the highest return with minimal effort.

Shah warns that the most common mistake isn’t just prepaying—it’s reducing EMI and then spending the savings on lifestyle upgrades. “That’s a wealth leak,” she cautions.

The takeaway: paying off a loan early feels good, but the smarter move may be to let your money grow while servicing manageable debt.