Home Loan vs SIP Calculator: Should one take Rs 60 lakh loan or invest same amount through SIP? Which can save higher amount?
Home Loan vs SIP Calculator: Take a loan to buy a home or create a corpus to purchase the same? Which can help you save more money? Which option should you opt for? It depends on your financial goal, priorities in life, age, income status, etc.
Home Loan vs SIP Calculator: Will having the burden of a large-amount loan curtail your freedom early in your career? Should you postpone it till your late 30s or early 40s and instead invest the same amount in a scheme providing compound growth on your returns? Since one can't predict the future, it is highly confusing to take a call in such matters. Having a loan early in life can help one own a house by the late 40s or early or late 50s. But when someone will repay a large amount in interest, will they have the resources to enjoy life simultaneously? This is a question many ask themselves when they think about taking a loan.
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
Home Loan vs SIP
But in contrast, if they start an investment and make it for the same duration as the loan tenure, won't they have enough money to buy the home in one go while also enjoying the life during the investment? Well, it depends on the individual's priority, income status, and financial goals. In this write-up, through projections, see how much money a person will repay in a home loan and how much return they will get if they invest the same amount in a mutual fund SIP.
How home loan works
Home loans are taken for 15 years and above. The interest rate depends on the borrower's Cibil score, monthly income, repayment capacity, creditworthiness, etc. Since these loans are for a long duration, the borrower pays higher interest than the principal amount during the repayment period.
Home loan calculation
For our home loan calculation, we are taking the example of Rs 60 lakh loan, where the interest rate will be 9.5 per cent, and the tenure will be 25 years.
What will be EMI for this loan?
The estimated loan EMI will be Rs 40,512.
What will be interest and repayment amount?
The estimated interest on this investment will be Rs 61,53,729, and the estimated repayment will be Rs 1,21,53,729.
What will be SIP investment?
We are taking Rs 60 lakh as the SIP investment for 25 years. With that calculation, the monthly SIP investment will be Rs 20,000.
What will be rate of growth?
The annualised return on the investment will be 12 per cent for 25 years.
What will be estimated corpus?
Estimated capital gains in 25 years will be Rs 3,19,52,702, and the estimated corpus will be Rs 3,79,52,702.
What will be inflation-adjusted value of Rs 60 lakh in 25 years?
At a 6 per cent annual inflation rate, in 25 years, the value of Rs 60 lakh will be Rs 2,57,51,224. If we consider Rs 6 lakh (10 per cent of EMI) as the home loan down payment today, after 25 years, its value will be Rs 25,75,122. If we add both sums, the total estimated value of the same home will be Rs 2,83,26,346 25 years down the line.
Tax benefits on home loan
The home loan can also provide up to Rs 1.50 lakh tax benefits on the repayment of principal under Section 80C of the Income Tax Act, 1961. This facility is available to the taxpayers following the old tax regime.
Tax benefits on home loan
Taxpayers in the old and new tax regimes can avail tax benefits up to Rs 2 lakh in a financial year on the repayment of interest under Section 24.
The total of both can be a maximum of Rs 87.50 lakh. Here, the assumption is that the taxpayer belongs to the old tax regime and they don't have any other investment under Section 80C.
Should one go for SIP investment then?
There is no standard rule for everyone. This depends on individual choices, requirements, age, and financial goals.