Home loan EMI + SIP investment: How monthly SIP worth 10% of EMI can recover interest amount of Rs 1 crore, 30-year loan
Home Loan + SIP Investment: Should one take a home loan and buy the home, or should they start a SIP investment and delay the home buying decision to a few more years? Or should they do both simultaneously? It can be a tough question to get an answer to. But one can assess their financial goals and income to take the right decision.
Home Loan + SIP Investment: Real estate is expensive, so buying a home has become a costly affair. That's the reason home buyers are heavily depending on loans. When they take a home loan, the duration can be up to 30 years. In such a long duration loan, the interest amount is quite high compared to the principal. Prepayment, or paying an additional equated monthly instalment (EMI) can be some of the options to reduce the loan amount significantly. But if one can't manage to do either of them, the other option can be to run a parallel mutual fund SIP investment that can help one recover the interest or principal amount of the loan to a great deal.
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
What happens in a large amount, long duration loan
As the loan tenure increases, the interest increases. E.g., if one takes a Rs 70 lakh loan at a 9.5 per cent interest rate for 20 years, their estimated interest will be Rs 86,59,804.
What happens in a large amount, long duration loan
If the same loan is taken for 30 years, the estimated interest will be Rs 1,41,89,526.
Can interest amount be reduced?
Prepayment is an effective way to reduce the loan amount. Paying an additional EMI is another.
On a Rs 70 lakh home loan at 9.5 per cent interest for 25 years, if one makes a Rs 7 lakh prepayment on completion of 3 years, the estimated amount saved will be Rs 35,10,091, while the estimated time saved will be 68 months.
Can interest amount be reduced?
In another condition, if they go for an extra EMI every year, their estimated interest will be cut to Rs 89,69,422, while the estimated time saved will be over 4 years.
Rs 1 crore home loan calculation
We will take 9.5 per cent as the interest rate and 30 years as the duration.
What will be EMI?
The monthly EMI in such a case will be Rs 84,085.
What will be interest and repayment?
The estimated interest for such a loan will be Rs 2,02,70,751, and the estimated repayment will be Rs 3,02,70,751.
What will monthly SIP investment be?
The monthly SIP investment will be Rs 8,409 (10 per cent of the EMI amount.
What will be SIP investment duration?
The SIP investment duration will be Rs 30 years (the same as the loan tenure). The rate of annualised return will be 11 per cent.
What will be corpus in 30 years?
At 11 per cent annnualised return, the expected corpus will be Rs 2,37,99,386 in 30 years, which is more than the estimated home loan interest.