Buying a home can be the biggest decision of your life and it gives a huge sense of accomplishment. The snowballing rates of home loans have made it necessary to avail home loans. Home loan not only supports your dream, but offers other advantages such as tax benefits, low-interest rates and so on. Paying home loan EMIs is your legal obligation, however, due to the size of EMIs you may find yourself in a situation wherein you are unable to pay the EMI. A home loan comes with a long tenure and the EMI may consume 20-25% of your monthly income. Such situations are likely to arise when you lose your job, unexpected high expenses due to medical emergencies, loss in business and so on.
As mentioned earlier, home loans are accompanied by long tenures and the interest on the loan taken. But what if we tell you that you have the option to write off your home loan EMI. Many of us increase the EMI to pay off the loan quickly. Rather you can invest that additional amount in equity funds and the returns received can be used for paying the loan EMI.
For example, if an individual takes a home loan of 30 lakhs for 20 years with an interest rate of 10%. The monthly EMI is Rs. 28,951, the total interest paid is Rs. 39,48,155 and the total amount payable is Rs. 69,48,155. You can write off this monthly EMI with returns gained from investments that generate a higher corpus. An SIP or systematic investment plan can help you and cover your interest amount completely. In SIP, you are required to invest a small amount monthly which assures greater returns. For instance, if you invest Rs. 3000 monthly in SIP for 20 years and the rate of return is 12%, you can accumulate amount up to Rs. 29, 97,444. Hence, the amount accumulated through SIP can help you repay your interest amount of the home loan.
For more benefits, you should start early investments in SIP because the longer the period of investment the easier it is to write off home loan EMIs. For example, if you create a corpus for 5 years through SIP beforehand you can easily fund the EMIs. Once you have created sufficient corpus through SIP, you can use the returns to fund your home loan EMIs. Let us understand, how you can contribute to home loans through SIP.
Refer to the table below to understand the SIP investment strategy for 5 years before you take a home loan.
|
Particulars |
Amount (INR) |
|
SIP monthly amount |
10,000 |
|
Time period before you opt for Home Loan |
5 years |
|
Rate of return (approx.) |
12% |
The below table refers to the home loan opted after 5 years.
|
Particulars |
Amount (INR) |
|
Home loan amount |
30,00,000 |
|
Rate of interest |
10% p.a. |
|
Tenure of the loan |
20 years |
|
Monthly EMI |
28,951 |
|
Total payable amount |
69,48,155 |
Let us understand, how you can pay the above home loan through the SWPs of the initial investment.
As shown in the table, you have to pay monthly EMI of Rs. 28,951 for 20 years. However, through SWP or systematic withdrawal plan you can use your corpus generated through SIP and repay your home loan EMI.
If invested in SIP for 20 years the investor can yield Rs. 7,591,479 at the end of the tenure. This implies that the investor is left with Rs. 6,43,324 even after paying the home loan of Rs. 69,48,155.
Thus, the discipline of keeping aside a small amount of your monthly income along with other EMI payments, you can go far in writing off the interest payment made over all that period. So, if you ever decide to borrow money for buying a house or get a home loan, make some calculations and put discipline into the picture, to start an SIP and ease the burden of the high interest rate on Home loan EMIs.
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