Repay home loan without any burden!
Buying a house is the dream of every middle-class person, but the price of this dream is often half of the life’s earnings. Every step from down payment to EMI requires hard work and planning. The interest we pay while taking a home loan sometimes exceeds the principal amount. But what if we are told that this heavy interest burden can also be eliminated by investing a little wisely?
Yes, this is possible with the power of SIP (Systematic Investment Plan). Let us understand how you can make your home loan almost interest-free by investing just 10% of the EMI.
EMI vs interest: How big is the real burden?
Suppose you have taken a home loan of Rs 50 lakh for a tenure of 20 years and the interest rate is 8.5%. Accordingly, your monthly EMI will be around Rs 43,400. In 20 years, you will pay a total of Rs 1.04 crore to the bank, that is, you have paid approximately Rs 54 lakh as interest on a loan of Rs 50 lakh. This is the real burden that needs to be reduced.
How can SIP help?
Now suppose you invest only 10% of your EMI i.e. ₹ 4,300 every month in a mutual fund SIP. If this investment grows at 12% annual return, then in 20 years this amount will amount to around ₹ 35 lakh. If you increase your SIP by 10% every year (as your income increases), this amount can reach more than ₹65 lakh. That is, with the help of SIP, you can not only recover a major part of your interest but can also create wealth worth crores by the time the loan gets over.
How does this work?
SIP is a disciplined investment approach. In this, you invest a small amount every month which becomes huge in the long run due to the power of compounding. While the bank is earning interest from you every month by taking EMI, you can also earn ‘returns’ by investing money in the market through SIP. The only difference is that instead of the bank, you are putting your money to work for you.
New way of financial balance
If a person balances both his EMI and SIP wisely, he can reduce the actual cost of home loan to a great extent. This method not only reduces the interest burden but also provides a good amount at the time of retirement.