How to repay Rs 50 lakh, 20-year home loan in 10 years and save nearly Rs 40 lakh through SIP investment
If you are taking a Rs 50 lakh home loan for 20 years at a 9.50 per cent annual interest rate, your estimated EMI during that period will be Rs 46,607. With that EMI, your interest will be Rs 61,85,574 and the repayment will be Rs 1,11,85,574. It means the interest amount will be nearly Rs 12 lakh more than the principal amount. However, if you increase your EMI to Rs 49,992 a month, your interest amount will be reduced to Rs 49,48,436 and you will repay the loan in just 17 years.
Home Loan Repayment Through SIP Mutual Fund Investment: Borrowers take home loans for long durations such as 20 years and over. Since the duration is long, they often pay a higher interest amount than the principal amount. E.g., if you are taking a Rs 50 lakh home loan for 20 years at a 9.50 per cent annual interest rate, your estimated EMI during that period will be Rs 46,607. With that EMI, your interest will be Rs 61,85,574 and the repayment will be Rs 1,11,85,574. It means the interest amount will be nearly Rs 12 lakh more than the principal amount. However, if you increase your EMI to Rs 49,992 a month, your interest amount will be reduced to Rs 49,48,436 and you will repay the loan in just 17 years. Another effective way to repay a loan faster is to run a mutual fund SIP along with the home loan SIP. Here, your SIP amount can be the third of your home loan EMI. Get calculations in this write-up.
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Disclaimer: Calculations given below are for knowledge purpose only. Please do your own due diligence or consult an advisor before taking a home loan or starting an SIP for the same.)
What is you home loan EMI on Rs 50 lakh loan?
On a Rs 50 lakh loan for 20 years at a 9.50 annual interest rate, the home loan EMI will be Rs 46,607. The total interest in 20 years will be Rs 61,85,574, and the total repayment amount will be Rs 1,11,85,574.
What will be your SIP amount?
Your SIP amount will be one-third of your home loan EMI= Rs 46,607/3= Rs 15,535 approximately
How will you repay Rs 50 lakh home loan?
As you can see in the chart given below, after the first year, you will repay Rs 35,676 as the principal amount and Rs 1,97,356 as interest. The outstanding balance will be Rs 49,64,323 after 1 year, and your loan amount paid till date would be 0.71 per cent. Fast forward that to 10 years of your repayment, and your principal amount paid in the 10th year will be Rs 2,14,632, and the interest paid will be Rs 3,44,644. Your outstanding balance at that time will be Rs 35,09,907. You would pay a 29.8 per cent amount till that year. After half duration, you still have to pay Rs 35,09,907 as the outstanding balance. Let's see how SIP can help you repay that amount-
How will you repay Rs 50 lakh home loan?
| Year | Principal | Interest | Total Payment | Outstanding Balance | Loan paid to date | |
| 2024 | ₹ 35,676 | ₹ 1,97,356 | ₹ 2,33,035 | ₹ 49,64,323 | 0.71% | |
| 2025 | ₹ 91,589 | ₹ 4,67,691 | ₹ 5,59,284 | ₹ 48,72,736 | 2.55% | |
| 2026 | ₹ 1,00,677 | ₹ 4,58,601 | ₹ 5,59,284 | ₹ 47,72,058 | 4.56% | |
| 2027 | ₹ 1,10,671 | ₹ 4,48,609 | ₹ 5,59,284 | ₹ 46,61,388 | 6.77% | |
| 2028 | ₹ 1,21,654 | ₹ 4,37,625 | ₹ 5,59,284 | ₹ 45,39,735 | 9.21% | |
| 2029 | ₹ 1,33,728 | ₹ 4,25,552 | ₹ 5,59,284 | ₹ 44,06,008 | 11.88% | |
| 2030 | ₹ 1,46,998 | ₹ 4,12,278 | ₹ 5,59,284 | ₹ 42,59,009 | 14.82% | |
| 2031 | ₹ 1,61,587 | ₹ 3,97,691 | ₹ 5,59,284 | ₹ 40,97,420 | 18.05% | |
| 2032 | ₹ 1,77,627 | ₹ 3,81,653 | ₹ 5,59,284 | ₹ 39,19,795 | 21.60% | |
| 2033 | ₹ 1,95,254 | ₹ 3,64,024 | ₹ 5,59,284 | ₹ 37,24,540 | 25.51% | |
| 2034 | ₹ 2,14,632 | ₹ 3,44,644 | ₹ 5,59,284 | ₹ 35,09,907 | 29.80% | |
| ₹ 14,90,093 | ₹ 43,35,724 | ₹ 58,25,875 |
What will Rs 15,535 SIP can give you in 10 years
We are considering a 13 per cent return from SIP investment. So, if you make a Rs 15,535 monthly SIP for 10 years, your investment during that period will be Rs 18,64,200. At 13 per cent annualised growth, potential long-term capital gains will be Rs 19,67,984 and the total corpus will be Rs 38,32,184.
Long-term capital gains tax calculations
As per the current long-term capital gains, there will be a Rs 1,25,000 tax exemption on Rs 19,67,984 long-term capital gains. It means the taxable income will be Rs 18,42,984. At 12.50 per cent long-term capital gains, the tax will be Rs 2,30,373, and the post tax income will be Rs 36,01,811. The amount is Rs 91,904 more than your remaining balance. With preclosure charges and other expenses, you can repay your remaining loan with the SIP amount.
How much will you save?
After 10 years, you would pay Rs 58,25,875 and your total repayment to be paid will be Rs 53,59,699. While making the SIP for 10 years, the total amount you spent was Rs 18,64,200, so you saved Rs 39,61,675.