How to Recover Your Interest from Your Home Loan Through SIP?

Most Indians view owning a home as a dream because doing so is an outward sign of advancement in Indian society. In India, renting a home is looked down upon, and friends and family are constantly pressuring you to buy one.

People usually view buying a home to be a smart investment option. However, this is not always true, it can sometimes be problematic. The major problem when purchasing real estate in India is soaring property prices. Real estate in India is among the most expensive investments in the world. This is where Home Loans come into the scenario. 

Banks and financial institutes offer various Home Loans to borrowers. Make sure you go for the lowest Home Loan interest rates to get easy repayments. A Home Loan has the facility of Equated Monthly Installments (EMI), making it easy for you to have home ownership without having to invest all your savings.

The monthly installments look payable; however, the overall cost of the loan, including the interest, is massive. The interest cost on these long-term mortgages can be higher than the cost of the loan itself, sometimes even exceeding it.

Let’s take an example to understand the math behind loan repayment. If you take a Home Loan of Rs. 30 Lakh for 25 years at an interest rate of 6.75%, you are likely to pay about Rs. 62 Lakh, which is more than double the loan amount.

Now, if you ask, “how much home loan can i get to reduce the interest,” then the answer to this question is there is no way to reduce the interest. However, there is a way to recover the interest. The one smart solution to recover interest from your Home Loan is through a Systematic Investment Plan (SIP). Keep on reading to know how SIP helps in interest recovery.

How Does a Systematic Investment Plan Help in Interest Recovery?

SIP is an investment strategy that focuses primarily on mutual funds. This investment plan debits predetermined money from the investor’s account and invests them in the selected mutual fund. Specifically, such investments help with risk management and encourage disciplined investing, preventing investors from exposing their entire portfolios to market fluctuations.

Financial experts believe investing even 10% of the Home Loan installment in SIP can help in interest recovery. The section below explains how.

Recovering Interest through SIP

By pursuing a Systematic Investment Plan (SIP) in Mutual Funds, a savvy investor can eliminate the loss of Home Loan interest. You can get the full cost of the Home Loan back if you start a SIP equal to 10% of the monthly installment amount as soon as the Home Loan EMI begins. Let us take the previous example to explain the SIP gains.

In the example above, you would pay close to Rs. 62 Lakh in interest for a Home Loan of Rs. 30 Lakh. It is likely that this amount, which is just the loan’s double, will deplete all your savings. However, if you set aside 10% of your EMI for a SIP, you ought to be able to pay off the loan. 

If you invest Rs. 2,000 in a SIP that yields an annual return of nearly 15%, you could build up a total corpus of about Rs. 65.7 Lakh over 25 years. Even though you give the bank Rs. 62 Lakh through SIPs, you can still make money. As a result, your overall loss becomes zero.

Specifically, with SIP investments, you get high returns which help you recover the full loan amount in due time. It is an excellent investment option to maximise your financial gains.

In a Nutshell

Even with the lowest Home Loan interest rate, buying your dream home can be unaffordable. Your loan amount could double due to interest accrual, increasing your debt load. However, smart investments in SIP mutual funds can easily recover your loan. With just 10% of your EMI invested each month, SIP’s high rate of return enables you to pay off your loan in full. All in all, by making proper investment decisions, you can realise your dream of home ownership.