Got a bonus? Edelweiss exec suggests a smarter strategy rather than prepaying your home loan

In a timely advisory to salaried professionals, Niranjan Avasthi, Senior Vice President & Head – Product, Marketing, Digital and Corporate Communication at Edelweiss Asset Management, cautioned against a knee-jerk financial move: prepaying home loans without weighing smarter investment alternatives.

In a LinkedIn post, Avasthi shared a familiar scenario: “Every year, friends call and ask, ‘I’ve got some extra cash… should I prepay my home loan or invest it?’”

“Prepaying your loan feels good,” he noted, “but it might not be the smartest money move.”

Using a ₹50 lakh loan with 20 years left and a ₹5 lakh bonus, Avasthi outlined four potential strategies:

Reduce EMI by prepaying: This cuts monthly payments and saves around ₹5.03 lakh in interest over two decades. But the long-term wealth impact is limited.

Cut EMI and invest the difference: Reinvesting the ₹4,182 EMI savings monthly into mutual funds could yield ₹38.5 lakh in 20 years — balancing debt reduction with wealth creation.

Shorten tenure, keep EMI unchanged: This knocks four years off the loan and saves about ₹15.7 lakh in interest. A good pick if clearing debt early is the goal.

Invest the bonus, skip prepayment: Investing the full ₹5 lakh at 12% CAGR could grow to ₹48.2 lakh over 20 years — offering the highest return, provided loan payments continue uninterrupted.

His advice: “If your investments can earn more than your loan rate, invest, don’t prepay. Or if you prepay, invest the reduced EMI amount every month.”

He dubbed it the “Mango Money Rule” — a simple reminder that blending loan strategy with investing can boost financial growth.

“Repeat this every year with your bonus,” Avasthi said, “and watch your wealth grow while your loan slowly fades away.”