An SIP can help you save entire interest amount on your home loan
From the beginning of the year, the banks and the government has been pushing for "affordable housing". After demonetisation in November, the banks are using the liquid cash by reducing the home loan rates. On the other side, the government is introducing new policies and regulation to uplift real estate sector.
The Real Estate (Regulation & Development) Act 2016 (RERA) has finally come into effect from May 1. In March, last year the upper house Rajya Sabha had passed the RERA Act, which was aimed to bring transparency to the real estate sector.
Adding to it, on Monday, State Bank of India slashed its low-cost home loan rates by 25 basis points to 8.35%.
It is an open fact that homes are generally bought on finance from banks and housing finance companies charging an interest rate. Customers, in turn, pay the applicable EMIs for the loan they avail from the financial institution.
What if we tell you that you can make the interest charged on home loans for free!!
Yes. The easiest and simplest way is investing in systematic investment plan (SIPs).
In a SIP, an investor has to deposit a small sum every month or every quarter and the amount of investment can be as low as Rs 500. If you choose a mutual fund scheme and invest in SIP, based on the plan that you have opted for they will allocate your money in debt or equity.
Ajit Narasimhan, Category Head - Savings and Investments, BankBazaar.com, said, "One can start an SIP with a much lower but regular investment which can be as low as Rs 500 a month. One can even consider daily SIP of Rs 100."
According to Bankbazaar.com, the returns generated by SIP mutual funds have been around 12% to 22% in the last 5 to 10 years.
Coming back to your home loan, this is the calculation you need to keep in mind. For instance, you took a home loan of 10 lakh for 20 years tenure. Considering home loan interest at 9.5%, the total amount payable to bank is Rs 22,37,114 at the end of 20 years.
Now, as per the calculation the interest amount is Rs 12,37,144.
Now, suppose you start a SIP for the same tenure as your home loan which was for 20 years. If you invest just Rs 1000, which 0.1% of your home loan amount, for 20 years, the principal amount comes to Rs 2.4 lakh (20*12*1000).
If the return generated by SIP mutual funds is 15%, so after 20 years you will get back Rs 14,97,239. Even if you deduct your SIP money invested which was Rs 2.4 lakh from the amount earned, then you will get Rs 12,57,239 (Rs 14,97,239-Rs 2,40,000). This amount is nearly 20,000 more than that your interest on home loan amount, which was Rs 12,37,144.
Which means, you can easliy pay your home loan interest amount by returns from SIPs. So, while you are running for getting home loans, do not forget to invest in SIPs to make interest on home loans for free.
Disclaimer: This story is for informational purposes only and should not be taken as an investment advice.