Rs 52,422 Home Loan EMI+ Rs 5,420 SIP Investment: How SIP worth 10% of EMI can recover Rs 98 lakh interest of Rs 60 lakh loan
Home Loan EMI+SIP: One spends a substantial amount from their monthly income to repay equated monthly instalments (EMIs) of their home loan. Simultaneously, if they run an SIP investment, which is 10 per cent of the EMI amount, it can help recover the interest amount of the loan a great deal.
Home Loan EMI+SIP Investment: For a salaried person, repaying a home loan can be a tough task. After a lot of permutations and combinations, a borrower accommodates the home loan EMI to their monthly income. But even if they start investing a small amount compared to their EMI, they can recover the interest amount in the long run. The combination of home loan EMI and mutual fund SIP investment can help recover the amount considerably.
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
How much should be EMI?
Experts say that if one doesn't have any other financial obligation, a borrower can keep the home loan EMI maximum at 35 or 40 per cent of their salary.
How much should be EMI?
But a person should not feel stretched when repaying their home loan, so they can set the EMI at a level where they don't have to compromise with their monthly expenses and other financial obligations.
Impact of increased income on home loan
When income increases, a home borrower may find it easier to repay their loan. After some years, they may opt for some options that can reduce their interest amount and tenure considerably.
What can be options to reduce interest?
They may opt for a prepayment such as full or part payment, paying an additional EMI every year, or increasing their EMI amount every year. Such arrangements are possible after checking terms and conditions with the lender.
What about making investment?
Along with repaying a home loan, one can start a monthly investment with a fraction of the EMI amount. If it is not possible in the first few years of the loan, such an investment can be started after 3 or more years into the loan.
Home loan calculations
We are taking the example of a Rs 60 lakh home for 25 years. The interest rate for such a loan will be 9.5 per cent.
What will be EMI?
The estimated EMI for such a loan will be Rs 52,422.
What will be interest and repayment?
The estimated interest for such a loan will be Rs 97,26,540, while the estimated repayment amount will be Rs 1,57,26,540.
What will be SIP investment?
The SIP investment will be Rs 5,250 (which is slightly over 10 per cent of the EMI amount of Rs 52,422).
What will be SIP investment duration and growth rate?
The duration for such an SIP investment will be 25 years. The annualised SIP return (XIRR) will be 12 per cent.
What will be SIP corpus?
The investment in 25 years will be Rs 15,75,000, the estimated capital gains will be Rs 83,87,584, and the estimated corpus will be Rs 99,62,584.
What if one starts SIP investment from 4th year of loan?
In that case, they will have an investment horizon of 22 years. The estimated corpus during that duration will be Rs 68,03,454 on an investment of Rs 13,86,000.
What if one starts SIP investment from 4th year of loan?
However, if the borrower increases their monthly SIP investment from Rs 5,250 to Rs 7,690, they can recover the amount with that investment in 22 years.
The total investment in that case will be Rs 20,30,160, estimated capital gains will be 79,35,290 and the estimated corpus will be Rs 99,65,440.