Rs 65 lakh Home Loan vs SIP: A home loan is a popular way to buy a home.
It is because real estate is expensive, buyers mostly don’t have a large amount to take this financial decision, or they have other financial goals to achieve.
But if they have a home, they may not have to pay rent; they can use their home their way, and they renovate it the way they want.
But purchasing a home is a long commitment since home loans are for duration from 15 years to 30 years.
The larger the loan amount, the shorter is the EMI but the higher is the interest amount.
On the other hand, a mutual fund systematic investment plan (SIP) is a way to create a corpus that can help you accomplish many of your financial goals and buy a home.
But an SIP investment may need many years to create a sizeable corpus since corpus increases faster with compound growth, which reflects in the long period.
Buying a home from a SIP investment may be an individual’s decision, which may depend on the years they can wait for buying a home, their age, capacity to invest, and financial goals, among other factors.
If one opts for investment instead of buying a home, they may continue to pay rent if they are staying in a rented accommodation; the real estate can get costlier; they may also not take tax benefits on the principal and interest paid.
Here, we are creating two scenarios. In the first scenario, we will show how a Rs 65 lakh home loan taken at 9.5 per cent for 25 years will pan out.
In the second scenario, we will show that if the amount equal to EMI is invested in a mutual fund scheme where the annualised return is 10 per cent, in how many years can the amount required to buy the same home be created?
Home loan calculations
For a Rs 65, 25-year loan taken at a 9.5 per cent interest rate, the estimated EMI will be Rs 56,790, estimated interest will be Rs 1,05,37,085 and the estimated repayment will be Rs 1,70,37,085. We are assuming a down
payment of 10 per cent in the loan, the home’s current value is estimated to be Rs 72,00,000 currently.
Corpus from SIP investment
At 10 per cent annualised return, investment in 11 years will be Rs 74,96,280, estimated capital gains will be Rs 58,06,431, and the estimated corpus will be Rs 1,33,02,711.
Cost of Rs 72 lakh home in 11 years
At a 5 per cent price rise, the estimated cost of Rs 72 lakh will be Rs 1,23,14,443.
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
