Make Your Home Loan Principal and Interest Zero

Buying home in India is a big event and is a dream of the entire family. It’s a permanent place where they can live peacefully and make it up as per their own likings which brings in sense on increased emotional well-being. It also brings in a sense of security. People who have surplus money can buy additional properties like a holiday home, farm house or a house with a purpose of investment that not only grows over a period of time but also provides consistent rental income. However, not everyone has surplus money. In order to realise their dream of buying home, majority needs to take home loan. The loan is available for 75% to 80% of the value of the home and the factor that people ignore is that they end up paying more than double the money of they took as a loan. Let’s understand it with few examples.

Example 1:

In the above example, if a person purchases a home worth Rs.1,25,00,000/- takes a home loan of Rs.1,00,00,000/- for a period of 20 years at an interest rate of 9%, the interest alone amounts to Rs.1,16,00,000/- which is more that the home loan value. This interest is deducted along with Principal in the EMI.  The money gone in interest cannot be recovered and is a sunk money.

However, there is a formula to recover Loan amount along with the interest that you pay to Bank or NBFC.

It’s Systematic Investment Plan (SIP). The illustration of the formula is as below.

The day your home loan EMI starts, start investing 0.15% of Loan Amount in SIP, this will not only enable you to recover your interest amount, but also the entire Loan amount.

Let’s look at the example below.

Example 1 A:

A Sip of 15000 monthly (0.15% of 10000000) for 20 years at an average returns of 15% per annum (historical returns) will help the person not only recover the interest amount but also the entire loan amount.

Let’s take up another example to see if this standard formula works for different value of home loan.

Example 2:

In the Example 2 example, the cost of house is Rs.1,00,00,000/- loan availed isRs.80,00,000/-. The EMI is Rs.71,978/- and total Principal repayment along with interest will be Rs.1,72,00,000/-.

Let’s go with the standard formula of 0.15% of loan amount of monthly basis and see what the results are?  

Example 2B:

So we see in Example 2B that the formula works. Let us also see of it works for smaller value of home loan in the examples below.

Example 3:

Going with the standard of SIP of 0.15% of Principal Home Loan amount i.e. Rs. 6000 (4000000*.15%), let us check the Example 3B below.

Example 3B:

Therefore, we can conclude that we can easily recover Home Loan Principal as well as Interest amount by starting SIP of 0.15% of Home Loan of any value.

Disclaimer : Mutual Fund Investments are subject to market risk. The illustrations above have been shown as per the historical returns of Sensex. The actual returns may differ as per market conditions