Debt is not always a hassle.. If you understand these calculations, you can earn a lot of money..

Most of us either save for years to buy a home or take out a home loan from a bank. Many people think that if we have the money, why take out a loan? But the truth is that "no loan" isn't always a smart financial decision.

If you have ₹50 lakh, instead of investing it all at once in a house, adopting a smart strategy can generate additional profits over the next 20 years. Let's understand how.

What is a Smart Money Strategy?

This strategy works on a simple but sound financial logic. If the return from the investment is higher than the interest on the loan, then taking a loan is better. You can take a home loan at a rate of around 9%. Meanwhile, investing in mutual funds will give you an average return of 12%. This means that if you take out a home loan and invest your money in mutual funds, you'll earn a 3% higher return, and over the long term, this difference could reach crores.

What will be the calculation if you buy a house with cash?

In a place like Delhi NCR, a 2BHK flat will cost around ₹50 lakh. So, if you have ₹50 lakh, one way is to pay the money and buy a house. There's no need for a loan, and there's no hassle of EMIs. Meanwhile, home value increases at an average rate of 9% annually. This means that after 20 years, your home will be worth approximately ₹2.80 crore.

What will be the calculation if you take out a home loan?
If you buy a house worth ₹50 lakh, you'll need to pay approximately 20% of the amount, or approximately ₹10 lakh, as a down payment. 80%, or ₹40 lakh, will be a home loan at a rate of approximately 9%. Thus, over 20 years, you'll pay approximately ₹46.37 lakh in interest on a ₹40 lakh loan. Your total expenditure will be ₹86.37 lakh.

Now, you'll have ₹40 lakh in cash, which you can invest elsewhere. If you invest it in a mutual fund, your money will grow at a rate of approximately 12% in 20 years, totaling approximately ₹3.85 crore.

Is this junk or a gold mine? Selling it will yield this much money... If 6 Chandrayaan-3 missions are completed, 800 government schools could be built!

Now, understand how much you'll benefit.
If you purchase a home with a home loan, the down payment of Rs 10 lakh and the remaining loan interest of Rs 40 lakh will total approximately Rs 86.37 lakh after 20 years. This means, even after including the down payment of Rs 10 lakh, you'll end up with approximately Rs 96.37 lakh. The investment will net you a total of Rs 3.85 crore. This means you'll still benefit by Rs 2.88 crore after purchasing the home.

On the other hand, if you buy a cash home, it will cost you Rs 50 lakh in one go. After 20 years, the value of the home will increase by 9% to Rs 2.80 crore. This means you'll benefit by approximately Rs 8 lakh, which is modest over 20 years. However, if you get higher returns from mutual funds, you'll benefit significantly.

When to buy a house in cash, when to take a home loan?
If you believe the property will yield strong returns in the future, you can buy a house in cash, as the property's returns will benefit you. However, if you don't believe this, you can take out a loan. Mutual funds typically offer a 12% return, but sometimes it can be much higher. This means you can earn substantial returns.