In pursuit of homeownership, many aspire to buy a house, but the financial constraints often lead to reliance on home loans, turning it into a lifelong commitment. However, there’s a savvy financial strategy that can potentially make that dream home more affordable: combining Home Loan EMI with Systematic Investment Plan (SIP) in mutual funds.
Calculating the Home Loan
Let’s consider a scenario where you’ve taken a home loan of Rs 40 lakh (80 percent of the property value) for a house worth Rs 50 lakh. Assuming an EMI period of 20 years at an 8.5 percent interest rate, your monthly EMI would be Rs 34,713, resulting in a total payment of Rs 83,31,103 over the loan tenure.
Recovering Costs through SIP
To offset the cost of your home, SIP becomes a key player. Allocating around 20-25 percent of your EMI to SIP is a general guideline. In this case, if your EMI is Rs 34,713, investing approximately 25 percent, or Rs 8,678, in SIP every month can be a strategic move.
Assuming an annualized return of 12 percent, your total SIP investment over 20 years would amount to Rs 20,82,480. The potential long-term capital gains could reach Rs 65,87,126, resulting in a total corpus of Rs 86,69,606.
The SIP Plus Home Loan EMI Advantage
By combining home loan EMI and SIP, you would pay approximately Rs 83,31,103 over 20 years through the EMI. Additionally, the SIP investment of Rs 20,82,480 creates an extra corpus of Rs 86,69,606. Therefore, your total investment effectively becomes Rs 1,04,13,583.
Considering the total corpus generated from SIP, the effective price of your house amounts to Rs 17,43,977. This means that, through a smart combination of home loan and SIP, you could potentially acquire a house worth Rs 50 lakh for just Rs 27.43 lakh, including the Rs 10 lakh invested from your own pocket during the home purchase.
