Make your home loan interest free by investing in Mutual Funds

The top priorities of any individual are to own your own house. Whether they’re starting their own family or not. Any salaried person is at the top of the list of goals for buying a home. And millions of people can achieve their goals by choosing a home loan.

They will easily pay down for the house and stay comparable between them. They can use for as long as 20 years of monthly installments or term payments for EMI loans.

PAYING EMI

But, if the home loan instead of paying EMIs can usually be between Rs. 20,000 to Rs. 30,000. We recommend the same individuals invest the same amount in a monthly balanced Fund through an organized investment plan or SIP.

Says, then instead of easily agreeing on it. There will be a lot of hesitation. Why is it that millions of us pay a specific portion of our salary for EMIs? But they can never pay that much for a mutual fund investment?

What if we told you that investing the same amount in mutual funds would provide. You far greater returns in the long run than a home loan? But how? Let’s find out.

WHAT IS MEAN BY HOME LOAN? AND HOW DOES A HOME LOAN WORK?

To purchase a home, a person can borrow funds from a bank or a Non-Banking Financial Company (NBFC) is a home loan. After verifying the borrower’s loan repayment ability. The loan lender disburses the loan amount. The loan amount is not the total value of the house—a portion of the cost of the home.

Usually, the buyer pays about 10% or 15% as a down payment. Once the loan is repaid, the borrower will have to repay. The loan with equal monthly installments or monthly payments is called EMI. Each month, the borrower must pay the EMI to the lender for the entire home loan period. Usually 15 or 20 years or longer.

The lender charges

Here will come the interest, where the lender will make money by lending. The lender charges the entire loan amount at an interest rate of 8% to 10% per annum. When you pay EMI, part of it goes to interest, and the rest goes to real money.

At the end of the home loan term, what you pay for the house? It is much higher than the house’s actual value. Add in that stamp duty charges and registration fees. Ultimately the house costs even higher.

HOW IS A HOME LOAN AN INVESTMENT?

A good one at that to purchasing a home or any other property is almost an investment. In the long term is that the price of a house will eventually go up. After ten years, A home or a property is deemed an ‘appreciating asset.

That means your house will cost a lot more. Another reason is the ability of a property or home. To generate passive income without actively doing. Anything that you can get income, it will call passive income.

You can retire and just receive passive income. Own a property which means you can take it out if you are not using it yourself.

Therefore, you get to rent for your property every month, thus generating passive income. So yes, taking out a home loan and buying a home is considered a good investment option.

PREPAYMENT OF LOAN:

There is another option to prepay the home loan before the tenure is over when you take a home loan. You may get some extra money or a bonus at work. You can use this extra fund. To pay off your house loan—repayment.

A home loan considers a good ‘investment.’ Due to you saving upon interest. Lenders charge annual interest, which means the longer your loan term runs. The more your interest will eventually pay.

ANOTHER OPTION TO PREPAY THE HOME LOAN

There is another option to prepay the home loan before the tenure. It is over when you take a home loan. You may get some extra money or a bonus at work. You can use this extra fund. To pay off your house loan—repayment.

A home loan considers a good ‘investment.’ Due to you saving upon interest. Lenders charge annual interest, which means the longer your loan term runs. The more your interest will eventually pay.

After you repay your home loan, it will shorten your period of employment by a few years. It is bringing down the annual interest. But repaying your home loan is still no better investment than mutual funds.

The question arises if you receive some extra cash, better prepay your home loan. Or put that extra money in mutual funds? We will get the answer soon. First, let us understand what mutual funds are?

WHAT ARE MUTUAL FUNDS?

Mutual funds are collected from many investors merged and are invested in stocks, bonds and other assets. Special money managers manage mutual funds, and they decide where to invest based on the market status. Here the money managers aim to invest the pooled funds such that the investors gain some profits.

WHAT IS A SIP?

SIP stands for Systematic Investment Plan. It is a structured process that allows one to invest in a mutual fund, where one can regularly invest. Instead of investing lump-sum amounts into mutual funds, SIP facilitates a person to invest a fixed amount every month towards a mutual fund.

Investment in SIP can be made for fewer amounts. But the best way to grow your fund is to invest for a longer duration. So, when it comes to paying out monthly amounts as an investment. SIP sits right up there with an EMI and can be more advantageous.

How can make your home loan interest free by investing in Mutual Funds:

As we know, SIP investments in mutual funds can yield significantly higher returns than home loans. For example, if you have a plane to buy a home and the cost of the home around Rs. 37.5 lakh.

Then you decide to get home on loan. Usually, lenders ask for a down payment that is about 20% of the home’s value. Here you will pay 7.5 lakh as a down payment and get a loan for the remaining Rs.30 lakh. This cost has 10% per annum and 15 years of the loan tenure.

ONLINE EMI CALCULATOR

Any good online EMI calculator will show you that you will have to shell out an EMI of Rs. 32,238 for this particular loan. In addition, the cost of registering the house. Which can be 20% of the house cost, will be about 7.5 million in this case.

Thus, a house would cost Rs. 37.5 million. You will pay close to an actual cost of Rs. Rs. 73 million. When you pay down, add up the total number of EMIs and the entry cost together.

Now consider it for your home loan, that instead of paying out the EMI of Rs. 32,238. You will pay the same amount monthly for mutual fund investment through SIP. To make matters more realistic, we say you don’t have a house. You have to pay ten thousand rupees in rent. out of the Rs. 32,238.

Every month, you are left with Rs. 22,238 to invest in SIP. We are assuming that you invest this amount every month for 15 years. You also pay down, and the registration fee falls below Rs 15million. It is close to Rs 4.28 crore, which is a whopping 20 % return.

IF WE ASSUME

Even if we assume that the cost of your house now will have been defined at Rs 37.5 lakh 10 times in the last 15 years, it will still cost Rs. 3.75 crores, Less than what you have earned with your sip amount, including Rs 10,000 for rent. It is also worth noting that the tenfold definition of a property. It is merely pushing and unlikely.

Therefore, even after spending less money on mutual funds after the same period. Your mutual fund corpus will be much higher than the value of your property. If you rent your specific home loan against a mutual fund. You may want to check for yourself how to use the available SIP calculator online versus a home loan.

Conclusion:

It is clear that if you invest in multiple funds like your home loan EMI through SIP, you are investing better and getting more profit. Still, individuals are much more reluctant to put money into the SIP but are excited about putting in a home loan EMI.

This may have something other to do with the psychological benefit of a homeowner. A closer look will show that investing in mutual funds is a better investment option than home loan investing.

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