The harsh reality of exorbitant real estate prices and the burden of hefty home loans often overshadow the Indian dream of owning a home.
Faced with societal expectations and financial strains, individuals find themselves grappling with the weight of interest payments that appear insurmountable.
But what if there were a way to flip the script and make your home loan interest-free?
Stay tuned as we uncover a revolutionary strategy to transform this dream into a debt-free reality.
Staggering Lifetime Expense of Home Loans Revealed
Many financial institutions emphasize the manageable monthly installments required for your dream home, fostering the illusion of affordability. However, the reality is far from rosy.
Despite meeting the monthly payments, the cumulative cost of these loans often skyrockets. The interest accrued over the loan’s duration can far exceed the initial loan amount.
Take, for instance, a ₹40 lakh home loan at 9% interest over 20 years.
| Calculation of Home Loan EMI | |
| Home Loan Amount | ₹ 40 Lakhs |
| Tenure | 20 years |
| Rate of Interest | 9% |
| Interest Payable | ₹ 46.37 Lakhs |
| Total Payment (Interest+Principal) | ₹ 86.37 Lakhs |
| EMI Per Month | ₹ 35,989 |
After making monthly EMIs for 20 years, you end up paying a total of ₹86.37 lakhs. This means you pay an extra ₹46.37 lakhs in interest alone. It’s quite a shock when you realize you’re paying more in interest than the actual loan amount.
Unfortunately, there’s no way around paying interest because that’s just how the loan system works.
So, does this mean you shouldn’t buy a house until you have the entire amount saved up? Ideally, yes, if you can manage it. However, for most of us, saving up the entire amount isn’t feasible.
Make Your Home Loan Interest-Free with Mutual Funds
By initiating a SIP (Systematic Investment Plan) equivalent to 0.10% of your home loan amount into a mutual fund scheme, you can recuperate the interest paid.
To illustrate using the previously mentioned example:
Commencing a monthly SIP of ₹4,000 (0.10% of the loan amount), your investments, with an average annual return of 15%, will amass to a total of ₹59.88 lakhs over 20 years.
| Home Loan Amount | ₹ 40 Lakhs |
| Interest Payable | ₹ 46.37 Lakhs |
| Tenure | 20 years |
| SIP Amount (0.10%) | ₹ 4,000 |
| Total Invested Amount (in 20 years) | ₹ 9.60 Lakhs |
| Total Corpus accumulated | ₹ 59.88 Lakhs |
| Total Corpus (after deduction of Invested Amount) | ₹ 50.28 Lakhs |
Even after deducting your invested amount of ₹9.6 lakhs from this corpus, you’ll still have ₹50.28 lakhs in hand. This sum is more than sufficient to cover the interest payments you’ll incur.
Regardless of your loan amount, this calculation remains valid. Let’s consider a few examples to illustrate:
1. Loan amount of ₹ 20 lakhs
| Home Loan Amount | ₹ 20 Lakhs |
| EMI Per Month | ₹ 17,995 |
| Interest Payable | ₹ 23.18 Lakhs |
| Tenure | 20 years |
| SIP Amount (0.10%) | ₹ 2,000 |
| Total Invested Amount (in 20 years) | ₹ 4.8 Lakhs |
| Total Corpus accumulated | ₹ 29.94 Lakhs |
| Total Corpus (after deduction of Invested Amount) | ₹ 25.14 Lakhs |
2. Loan amount of ₹ 70 lakhs
| Home Loan Amount | ₹ 70 Lakhs |
| EMI Per Month | ₹ 62,981 |
| Interest Payable | ₹ 81.15 Lakhs |
| Tenure | 20 years |
| SIP Amount (0.10%) | ₹ 7,000 |
| Total Invested Amount (in 20 years) | ₹ 16.80 Lakhs |
| Total Corpus accumulated | ₹ 1.04 Cr |
| Total Corpus (after deduction of Invested Amount) | ₹ 88 Lakhs |
3. Loan amount of ₹ 1 Crore:
| Home Loan Amount | ₹ 1 Cr |
| EMI Per Month | ₹ 89,973 |
| Interest Payable | ₹ 1.15 Cr |
| Tenure | 20 years |
| SIP Amount (0.10%) | ₹ 10,000 |
| Total Invested Amount (in 20 years) | ₹ 24 Lakhs |
| Total Corpus accumulated | ₹ 1.49 Cr |
| Total Corpus (after deduction of Invested Amount) | ₹ 1.25 Lakhs |
Conclusion:
If you’ve taken or are considering a loan for your dream home, interest costs are inevitable. However, with a small SIP, you can easily recover the entire amount. Utilizing tools like the SIP Calculator can help estimate your investment returns. But remember, this can only become a reality if you consistently invest that amount and exercise patience.