25-year Home Loan EMI vs 11-year SIP Calculator: Which can be faster route to arrange Rs 80 lakh for buying home; understand it through calculations
25-year Home loan EMI vs 11-year SIP: If one takes a Rs 55 lakh home loan for 20 years at 9.50 per cent, the estimated EMI will be Rs 51,267, the estimated interest will be Rs 68,04,132, and the estimated total amount will be Rs 1,23,04,132.
25-year Home loan EMI vs 11-year SIP: Taking a home loan early in your career or postponing it to early or mid 40s age has its own advantages and disadvantages. If one opts for buying a home early in their career, their savings and investment may take a hit, but by doing so, they can accomplish an important financial goal early in their life. At the same time, some people avoid staying in a rented property for long as they think the rising rent will anyway affect their savings and investing. So, they opt for buying a home, however, it may affect their investments.
On the other hand, if one delays buying a home for over a decade and instead invests the same amount through a mutual fund SIP they would have spent on paying the equated monthly instalment (EMI), they can get a sizeable amount in maturity even in half time of the loan duration. However, in that condition, they should ensure that they don't discontinue their investments. In this write-up, through projections, we will show how a person can arrange Rs 80 lakh through SIP investment in 11 years to cover the amount of a Rs 80 lakh, 25-year home loan.
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(Disclaimer: Our calculations are projections and not investment advice. Do you own due diligence or consult an expert for financial planning.)
How does home loan work
Real estate is expensive. One can't cover the expenses of buying a home in one go. So, they rely on a home loan. Such loans are high amounts and are taken for large durations. So, if one takes a home loan for 20 years, there is quite a possibility, that the interest they pay during that duration will be higher than the principal amount.
Home loan example
If one takes a Rs 55 lakh home loan for 20 years at a 9.50 per cent interest rate, the estimated EMI will be Rs 51,267, the estimated interest will be Rs 68,04,132, and the estimated total amount will be Rs 1,23,04,132.
Home loan calculations
Here, we are taking the example of a Rs 80 lakh home loan for 25 years. The interest rate will be 9.50 per cent.
What will be EMI?
The estimated EMI will be Rs 69,896.
What will be interest amount?
The borrower will pay an estimated interest of Rs 1,29,68,720 on the loan. The estimated repayment amount will be Rs 2,09,68,720.
SIP investment calculation
For our calculation, our SIP investment will be the same as the EMI amount, i.e., 69,986. The investment period will be 11 years and the expected annualised return (XIRR) will be 10 per cent (the investment can be in equity or hybrid mutual funds).
SIP corpus after 11 years
In 11 years, the invested amount will be Rs 92,38,152, the estimated long-term capital gains will be Rs 71,55,641, and the expected total amount will be Rs 1,63,93,793.
What will be post tax returns
The tax exemption on Rs 71,55,641 capital gains will be Rs 1,25,000, so the investor needs to pay 12.50 per cent tax on Rs 70,30,641. The total estimated tax will be Rs 8,78,830.125. It means post-tax estimated returns will be Rs 1,55,14,962.875.
Inflation-adjusted value of Rs 80 lakh home loan after 11 years
At a 6 per cent inflation rate, the value of Rs 80 lakh will become Rs 1,51,86,388. So, that can be the target amount from post-tax SIP returns.
How much extra money will one have
Here, we see that post-tax capital gains are Rs 1,55,14,962.875, while the inflation-adjusted home loan amount is Rs 1,51,86,388. So, the investor will still have Rs 3,28,574.875 more.