Home Loan EMI vs SIP: Guess faster route to your dream home with Rs 50 lakh loan or Rs 20,833 monthly investment; see calculations
Home Loan EMI vs SIP: Borrowers take home loan for a long term. So, they pay higher interest than the principal amount. In mutual fund SIP investment, one invests a prefixed amount consistently to build a corpus that can fulfil their financial goals.
Home Loan EMI vs SIP: Take a home loan, or go for an investment, get return on that and then buy a home. It depends on one's requirements, age, investment capacity, and risk appetite. People in 40s may prefer taking a home loan as at that stage, they may want to fulfil their requirement fast with uncertainty about the job post 50 looming large. People in their mid 20s or early 30s may think that they have more years to earn compared to someone in their 40s and may prefer investing to home loan borrowing. Other factors that can force a person to opt for home loan over investing are the rising prices or real estate and mounting residential property rents. In this write-up, we compare two scenarios, where what a borrower with Rs 50 lakh home loan for 20 years will pay in interest, and what if the same amount is invested periodically through SIP in a mutual fund scheme for the same duration.
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
Home loan conditions
We will take the example of a Rs 50 lakh home loan for 20 years at 9.5 per cent interest rate.
What will be home loan EMI?
The estimated EMI for that loan will be Rs 46,607.
What will be interest amount?
The estimated interest the borrower will pay in 20 years will be Rs 61,85,574, and the estimated repayment will be Rs 1,11,85,574.
What will be SIP investment?
For SIP investment, we will pick 2 scenarios. In the first, our monthly investment will be Rs 20,833, which is Rs 50 lakh divided by 240 months (20 years).
What will be SIP investment?
In the second scenario, we will pick the SIP amount the same as the EMI, i.e., Rs 46,607. The annualised return on the investment will be 12 per cent and the duration for investment will be 20 years.
SIP corpus in 20 years on Rs 20,833 monthly investment
The invested amount in 20 years will be Rs 49,99,920, estimated long-term capital gains will be Rs 1,41,63,468, and the estimated corpus will be Rs 1,91,63,388.
SIP corpus in 20 years on Rs 46,607 monthly investment
The invested amount in 20 years will be Rs 1,11,85,680, estimated long-term capital gains will be Rs 3,16,86,112, and the estimated corpus will be Rs 4,28,71,792.
Future value of home loan
We assume that at 6 per cent inflation rate, the estimated value of Rs 50 lakh loan will be estimated Rs 89,54,238 in 10 years.
What Rs 20,833 monthly SIP can give in 10 years
At 12 per cent annualised growth, a Rs 20,833 monthly SIP investment will grow to an estimated amount of Rs 46,67340.
What Rs 46,607 monthly SIP can give in 10 years
At 12 per cent annualised return, a Rs 46,607 monthly SIP will grow to estimated Rs 1,04,41,641. We are not calculating post tax return here.