By adopting a smart investment plan, you can eliminate your entire home loan interest. If you have a home loan of ₹30 lakh, a small SIP (Systematic Investment Plan) can help you earn returns equal to or greater than the interest. This brilliant financial strategy will not only save you money but also yield more than your investment in the long run. Let’s understand the math behind this foolproof plan.
How much interest will you pay on ₹30 lakh
A home loan is a long-term financial responsibility. For example, suppose you have taken a home loan of ₹30 lakh from the State Bank of India (SBI) for a term of 30 years, at an annual interest rate of approximately 7.50%. According to this calculation, over 30 years, you will have to pay the bank a whopping ₹45,51,517 in interest, in addition to the principal amount.
This will increase your total payment to ₹75,51,517. This is the amount that makes your dream of owning a home significantly more expensive. Now, let’s see how you can offset this interest burden.
₹1,700 SIP
If you start a SIP (Systematic Investment Plan) in mutual funds along with your home loan, you can reap incredible returns. You only need to start a SIP of ₹1,700 every month for the same 30-year period. Let’s assume mutual funds offer an estimated return of 12% over the long term. Under this innovative plan, your total investment over 30 years will be ₹612,000, but your total corpus will grow to ₹5237654. That means, you’ll earn a net profit of ₹4625654. This is a remarkable result.
How will SIP eliminate your home loan interest
This plan is so effective because the interest (profit) from the SIP completely offsets your home loan interest. While you’re paying a total interest of ₹45,51,517 on your home loan, you’re earning a total profit of ₹46,25,654 from the SIP. You can see that the profit from the SIP is more than the total interest on your home loan. This means that at the end of the 30-year term, you’ll have the SIP money neutralizing your entire home loan interest, making your home loan practically interest-free. This is a safe and smart path to financial freedom.
Key Points for Success
To take advantage of this smart financial plan, it’s crucial to keep a few things in mind. First, the size and duration of the SIP should be equal to your home loan. This ensures that both plans continue concurrently and that the SIP returns cover the loan interest. Secondly, mutual funds are subject to market uncertainties, so patience and discipline are crucial in this strategy.
You must regularly invest in SIPs and adhere to your investment horizon. Financial advisors also recommend adopting such strategies because the power of compound interest over the long term is incredible. This way, you can easily achieve your financial goals and enjoy an interest-free home loan.