Home Loan EMI vs SIP: Should you take a loan to buy a home or invest, build a corpus, and then purchase it? When we think about buying a home, these two options are most likely to strike our minds. While taking a home loan to buy it gives you the luxury of shifting to it immediately or in some time, it also saves you from the hassle of shifting to rented properties every now and then. Since you live in your own home, you can also make changes to its interiors as per your taste and choices.
When you buy it through an investment, you actually target a price and not a property.
When your investments mature and you are ready to purchase a home, you select your property at that time.
But the positive side of it is that you can increase your investment amount as your income rises and may go for a higher-amount property suitable to your lifestyle and financial status.
But if you require Rs 75 lakh to purchase a home whose price is Rs 82.5 lakh, including a 10 per cent down payment, which option may help you save a higher amount and more years- a home loan EMI or SIP investment? Let’s break down scenarios to know.
Home loan EMI calculations
If you take a Rs 75 lakh loan at a 9.5 per cent interest rate for 25 years, your estimated EMI will be Rs 65,527, estimated interest in 25 years will be Rs 1,21,58,175 and the estimated repayment amount will be Rs 1,96,58,175.
This is the amount for an Rs 82.5 lakh home.
We are not calculating expenses such as registration of the property.
SIP investment
Now, consider this scenario: you start an SIP investment equal to your EMI amount.
You invest this amount in different mutual funds from which you expect a 10 per cent annualised return.
You are also expecting a 5 per cent average rise in your property price.
At what point in your investment will you be able to purchase it? Let’s see calculations.
Value of SIP investment in 13 years
Let’s calculate it for a 13-year SIP investment period, which is slightly more than half of the loan period.
With a Rs 65,527 monthly SIP investment, the total investment in 13 years will be Rs 1,02,22,212, estimated capital gains will be Rs 1,00,89,863 and the estimated corpus will be Rs 2,03,12,075.
This is the pre-tax corpus; when you redeem it, you also need to pay capital gain tax.
| SIP investment/year | Capital gains/year | Value of investment | |
| 1 | ₹ 7,86,324.00 | ₹ 41,972.44 | ₹ 8,28,296.44 |
| 2 | ₹ 15,72,648.00 | ₹ 1,66,774.53 | ₹ 17,39,422.53 |
| 3 | ₹ 23,58,972.00 | ₹ 3,82,689.22 | ₹ 27,41,661.22 |
| 4 | ₹ 31,45,296.00 | ₹ 6,98,827.79 | ₹ 38,44,123.79 |
| 5 | ₹ 39,31,620.00 | ₹ 11,25,212.61 | ₹ 50,56,832.61 |
| 6 | ₹ 47,17,944.00 | ₹ 16,72,868.32 | ₹ 63,90,812.32 |
| 7 | ₹ 55,04,268.00 | ₹ 23,53,921.99 | ₹ 78,58,189.99 |
| 8 | ₹ 62,90,592.00 | ₹ 31,81,713.43 | ₹ 94,72,305.43 |
| 9 | ₹ 70,76,916.00 | ₹ 41,70,916.42 | ₹ 1,12,47,832.42 |
| 10 | ₹ 78,63,240.00 | ₹ 53,37,672.10 | ₹ 1,32,00,912.10 |
| 11 | ₹ 86,49,564.00 | ₹ 66,99,735.75 | ₹ 1,53,49,299.75 |
| 12 | ₹ 94,35,888.00 | ₹ 82,76,638.17 | ₹ 1,77,12,526.17 |
| 13 | ₹ 1,02,22,212.00 | ₹ 1,00,89,863.23 | ₹ 2,03,12,075.23 |
Value of Rs 82.5 lakh home in 13 years
At an average 5 per cent home price rise, the estimated price of an Rs 82.5 lakh home will be Rs 1,55,56,605.42 in 13 years.
| Year | Home price |
| 0 | ₹ 82,50,000.00 |
| 1 | ₹ 86,62,500.00 |
| 2 | ₹ 90,95,625.00 |
| 3 | ₹ 95,50,406.25 |
| 4 | ₹ 1,00,27,926.56 |
| 5 | ₹ 1,05,29,322.89 |
| 6 | ₹ 1,10,55,789.04 |
| 7 | ₹ 1,16,08,578.49 |
| 8 | ₹ 1,21,89,007.41 |
| 9 | ₹ 1,27,98,457.78 |
| 10 | ₹ 1,34,38,380.67 |
| 11 | ₹ 1,41,10,299.70 |
| 12 | ₹ 1,48,15,814.69 |
| 13 | ₹ 1,55,56,605.42 |
Amount spent on rent
If you prefer staying in a rented property rather than buying a home and starting an investment, you also have to pay rent for 13 years.
Let’s assume you are staying in a property whose value is Rs 82.5 lakh; we assume you will pay 2 per cent rent every year of the property’s value.
According to which, you will pay Rs 1,65,000 rent in the 1st year.
Like the price of property, your rent will also increase by 5 per cent.
In 13 years, the total estimated rent you will pay will be Rs 29,22,642.17.
| Year | Rent/year |
| 1 | ₹ 1,65,000.00 |
| 2 | ₹ 1,73,250.00 |
| 3 | ₹ 1,81,912.50 |
| 4 | ₹ 1,91,008.13 |
| 5 | ₹ 2,00,558.53 |
| 6 | ₹ 2,10,586.46 |
| 7 | ₹ 2,21,115.78 |
| 8 | ₹ 2,32,171.57 |
| 9 | ₹ 2,43,780.15 |
| 10 | ₹ 2,55,969.16 |
| 11 | ₹ 2,68,767.61 |
| 12 | ₹ 2,82,205.99 |
| 13 | ₹ 2,96,316.29 |
| Total | ₹ 29,22,642.17 |
Adding this value to the home’s estimated price in 13 years will be Rs 1,84,79,247.59.
Since you have Rs 2,03,12,075 in corpus, you still have Rs 18,32,827.41 in surplus.
But since you also need to pay a tax on capital gains, the remaining amount will nearly cover the expenses of buying a home.
But if you add the tax you could have saved on the home loan under the old tax regime in 13 years, the SIP corpus will be on the losing side.
In the old tax regime, a taxpayer can take a tax benefit of up to Rs 1.50 lakh on the home loan principal amount under Section 80C of the Income Tax Act.
On the other hand, under Section 24A of the Income Tax Act, they can also take a tax benefit of up to Rs 2 lakh on the interest paid in a financial year.
Conclusion
Your decision may depend on two things – your priorities and financial goals in life and the expected return from your SIP investment.
If you get an 11 per cent annualised return instead of 10, calculations will change completely.