How to make your home loan interest free?

Out of many types of loans available, HOME LOAN is most common Loan facility that one chooses. While paying EMI, people often know that they are paying MUCH MORE interest than the loan amount. Here we would like to give you a small idea as – How we can have an interest free Home Loan

Let’s take an example –
Mr. Raju has taken Home loan of Rs. 70,00,00.00 (Rs. 70 Lacs) for the tenure of 20 years, at an interest rate of 8.5%pa., so –

Home Loan Amount Rs. 70,00,000
Repayment Tenure 20 Years
Interest Rate 8.5% pa
So, EMI Rs. 60,748
Total Interest to be paid Rs. 75,79,430 (Only Interest Component)
Total Repayment against Loan Amount Rs. 1,45,79,430

PROBLEM - HOW CAN WE SAVE THAT INTEREST COMPONENT?

SOLUTION – Start SIP of the amount which is 15% of your EMI (15% of Rs. 60000 in above example) i.e. of Rs. 9,000 for the same loan tenure (i.e. for 20 years) with expected return of ONLY 14%, so –

Monthly Investment in SIP Rs. 9,000
Expected Return 14%pa
Investment Tenure (Same as Loan Tenure) 20 Years
Actual Investment Rs. 21,60,000
Valuation after 20 Years Rs. 1,05,61,267
Net Profit Rs. 84,01,267

Enlightenment –

  • Your Net Profit is more than your Interest Component.
  • This calculation also tells us that we should NEVER redeem our Mutual Fund investments to repay home loanotherwise we lose the compounding effect because return % is more that loan interest %.
  • You should imagine that your EMI is not Rs. 60,000 but it is Rs. 69,000 and plan your finances accordingly.