SIP vs Home Loan Interest: A home loan of Rs 50 lakh may cost you more than Rs 1 crore, of which the major part is only interest. If you invest in SIP instead of EMI, then in a few years you can create enough funds to buy a house without loan and save interest worth lakhs. Know how…
Home Loan Interest Savings Tips: It is everyone’s dream to have their own house, but in order to fulfill this dream, most of the people get stuck in home loan of 20-25 years. Do you know that if you take a home loan of Rs 50 lakh, you pay more than Rs 1 crore to the bank including interest? That means, for the price of one house, you pay the bank for two houses. But is it possible that you can build your dream home without reaching out to the bank and paying huge interest? Today we will tell you the formula of SIP (Systematic Investment Plan), which can save you from interest worth lakhs.
How expensive is a home loan?
Suppose you took a loan for 20 years at an interest rate of 9% to buy a house worth Rs 50 lakh. Your EMI will be around Rs 45,000 per month. In this way you will have to pay a total amount of around Rs 1.08 crore. The interest alone will be around Rs 58 lakh, which is more than the price of the house.
What is the SIP formula to save interest on home loan?
1. 10-10-10 rule
If you do not rush to buy a house today and invest with discipline for the next few years, you can get good profits. This is called ‘Buy Later, Buy Cash’ strategy. If you are young and want to buy a house after 10 years, then start a SIP of Rs 30,000 every month. If its expected return is considered to be 15%, then according to the SIP calculator, after 10 years your total amount can be around Rs 83.5 lakh. With this, you can buy a luxurious house without any tension and you will not have to pay even a single rupee of interest to anyone.
2. The magic of SIP with EMI
Now if you start SIP of the same amount of EMI you were going to pay to the bank (say Rs 45,000), then in just 7 to 8 years you will accumulate enough funds that you can buy a house worth Rs 50-60 lakh in cash.
3 big benefits of buying a house without loan
- You save lakhs of rupees by paying it to the bank, which can be used for your retirement or children’s education.
- The sword of debt does not hang over the head. The fear of job loss or recession does not bother you.
- When you go to buy a house with cash in hand, the builder or seller also gives you an extra discount of 5-10%.
Should you never take a loan?
According to experts, if you are in urgent need of a house right now, you can adopt the ‘hybrid model’. Save 50% of the house price and make the down payment and take a loan of the remaining 50% and also start a small SIP. This SIP should be such that it compensates the total interest paid by you till the loan ends.
Disclaimer: This article is for general information and educational purposes only. The SIP return rates given herein (e.g. 12%-15%) are approximate and depend on market fluctuations. Actual returns may be more or less than this. Before taking any decision related to home loan or investment, properly assess your financial situation, risk appetite and needs. Before making any investment, definitely consult a certified financial advisor. This content does not constitute investment advice or claim guaranteed returns.