SIP investment for 10 years vs home loan EMI for 25 years: Can you guess the quicker route to Rs 80 lakh home?
Home Loan vs Mutual Fund SIP: If you are taking a Rs 80 lakh home loan at a 9 per cent interest rate for 25 years, your estimated EMI will be Rs 67,136; the interest amount on this loan will be Rs 1,21,49,713. So, the total repayment amount will be Rs 2,01,40,713.
Home loan vs SIP: Do you know exactly how home loans work? You take a large loan for a long duration and pay an equated monthly instalment (EMI) for a long time. What happens in the process is that you pay more interest than the principal amount. For instance, if you are taking a Rs 80 lakh home loan at a 9 per cent interest rate for 25 years, your estimated EMI will be Rs 67,136; the interest amount on this loan will be Rs 1,21,49,713. So, the total repayment amount will be Rs 2,01,40,713.
But what if you plan on buying your home much in advance? Instead of taking a loan and paying EMI, what if you start a systematic investment plan (SIP) in a mutual fund for half the duration of the loan duration, say 12 years? Know which of the options can help you arrange money faster to buy your home.
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(Disclaimer: This calculation is for knowledge purposes only. Do your own due diligence or consult an expert before financial planning.)
Home loan conditions
Here, we are assuming a Rs 80 lakh loan for 25 years at a 9 per cent annual interest rate.
Home loan EMI
For that loan, your estimated EMI will be Rs 67,136. The interest you will pay for the loan will be Rs 1,21,49,713, and the total repayment amount will be Rs 2,01,40,713.
What if you invest the same amount in a mutual fund SIP?
Here, if you are investing Rs 67,136 in an equity mutual fund, where you are getting 12 per cent annual growth.
What if you invest that money for 10 years?
If you invest Rs 67,136 for 10 years and get 12 per cent growth on that, your investment during that period will be Rs 80,56,320, and your wealth gain will be Rs 75,41,996, and the expected amount will be Rs 1,55,98,316.
What if you invest that money for 12 years?
Investing Rs 67,136 for 2 more years can help your money grow to an estimated Rs 2.2 crore. During that period, your investment will be 96,67,584 and the wealth gain will be Rs 1,19,67,138.
What if you invest Rs 50,000 a month for 10 years?
If you opt for Rs 50,000 monthly SIP and spend the rest of the amount on a rented property, even that Rs 50,000 amount can help you get an estimated Rs 1,16,16,954 in 10 years. You investment in that duration will be Rs 60 lakh.
What if you invest Rs 50,000 a month for 12 years?
If you stay for two years more in your investment, your estimated total amount will be Rs 1,61,12,609 against the investment of Rs 72 lakh.
Home loan vs SIP: What is the outcome?
Here, in different projections, we presented how the same amount as you would have spent in EMI or less amount than that can help you gather money for buying a home.
What can be the mantra?
The mantra can be to invest as much money as possible in your younger days. If you are young and can postpone your home buying decision, you can invest that money in an investment scheme where you get post-tax growth over and above your home loan amount. It is true that the price of property can increase during that duration, but in just half the duration, the same EMI amount that you would have spent in buying a home can be used in an SIP investment to buy home.