Repaying a home loan to your bank can be a stressful exercise, stretching over months, years and decades. Many middle-class citizens in India get frustrated during this time, feeling miffed as they keep
paying the interest while the principal sum remains stagnant for long periods. In such circumstances, an investment plan that can bail you out of all the interest payouts would be nothing short of a magic wand, right?
Home loan buyers looking for relief from their tiresome interest payments and a prolonged set of EMIs only need a smart investment strategy, where deploying even 10 per cent of their total loan amounts in a Systematic Investment Plan (SIP) can potentially help them earn more than the total interest they pay. When you earn returns from a SIP plan equal to or higher than your interest outgo, you can indirectly make your loan interest-free.
It may seem ambitious, but an effective calculation based on a smart investment strategy shows it is very much possible to earn as much or even more than your home loan interest, helping you not just cover EMIs but also build a significant corpus for the future.
Interest vs Principal Amount
Let us start off the calculation by assuming that your total home loan repayment amounts to Rs 50 lakh for a tenure of 20 years. At present, say the interest rate is around 8.25 per cent to 8.50 per cent. Now, according to the EMI and interest calculation against the loan, your monthly repayments will be Rs 43,550 and the total interest paid to the bank will be Rs 54.52 lakh. In such a scenario, the interest amount that you end up paying to the bank will be more than even the sum you originally borrowed from the bank to fulfil your needs.
Now imagine a different scenario, where you invest 10 per cent of your monthly EMIs, say Rs 4,500, in a SIP plan on a beneficial Mutual Fund scheme and stay invested for 20 years, the same as your loan tenure. We know that many equity-based mutual funds are capable of delivering strong results over time and help grow our principal sums massively.
The Calculation
At monthly SIPs of Rs 4,500 and an estimated return of 15 per cent on an annual basis, a mutual fund scheme that is capable of overriding market fluctuations and other associated risks can bring returns of up to Rs 68.22 lakh at an investment of Rs 10.80 lakh over 20 years.
After deducting the principal sum, you can gain profits of up to Rs 57 lakh, which is more than the total interest you paid against your home loan in the last two decades, effectively getting all the interest outgo back in your account.
