ENGLISH VERSION HINDI VERSION
ENGLISH VERSION HINDI VERSION
Home loans cost you an insane amount of money over their lifetime
Most banks and housing finance companies highlight the EMI you need to pay for your dream house, making you believe that you can buy that house.
And while you might be able to afford the monthly installment, the cost of these loans is massive. In most cases, the interest paid on loan amount for a long-term loan is much higher than the loan amount.
Here’s an example –
For a home loan of Rs 25.00 lakhs at 9% interest for a tenure of 20 years
Calculation of Home Loan EMI
Home Loan Amount Rs. 25 Lakhs
Tenure 20 years
Rate of Interest 9%
Interest Payable Rs. 28.98 Lakhs
Total Payment (Interest+Principal) Rs. 53.98 Lakhs
EMI Per Month Rs. 22493
So, if you keep paying monthly EMI for 20 years, you end up paying Rs. 53.98 lakhs in total. This Rs. 28.98 lakhs extra is the interest you pay.
Take a moment to think about it – you pay more than what you borrowed as interest plus the actual amount.
However, there is no way out to get rid of interest because that’s the way the loan system works.
So, does it mean you should not buy a house till the time you don’t have the entire amount? If you can, nothing like it. But for most of us, this might not be a viable option.
The Solution –
Recover the interest amount you will pay by investing in mutual funds
By starting a SIP of 10% of your home loan EMI amount in a mutual scheme, you recover the interest amount.
Let’s continue with the example we mentioned above.
If you start a monthly SIP of Rs 2,300 (10% of the EMI amount), your investments at a 15% average annual return will grow to a total of RS 3487 lakhs in 20 years.
Home Loan Amount Rs 25 Lakhs
Interest Payable Rs. 28.98 Lakhs
Tenure 20 years
SIP Amount (10% of EMI) Rs. 2,300
Total Invested Amount (in 20 years) Rs. 5.52 Lakhs
Total Corpus accumulated Rs. 34.87 Lakhs
Total Corpus (after deduction of Invested Amount) Rs. 29.35 Lakhs
From this corpus, even if you deduct your invested amount, which is Rs. 5.52 lakhs, then also you will have Rs. 29.35 lakhs in your hands which is more than enough to cover the interest you will pay.