Loan: Planning to take a home loan in the new year? Here's a trick we're sharing in advance, so take note...
Buying your own home is a huge undertaking, or rather, like fulfilling a dream. Nowadays, home loans have made the dream of buying a house a little easier, as they provide lakhs of rupees from the bank, which people repay later through monthly EMIs. However, the biggest drawback of a home loan is the interest. While the monthly EMI might seem manageable, the total interest paid to the bank over several years can be quite shocking.
This makes the house very expensive. People then realize that if they had invested that same amount of interest elsewhere, they could have accumulated a substantial fund over the years. If you are also planning to take a home loan in 2026, don't worry. Today, we are telling you about a smart strategy that will allow you to buy a house and also recover a significant portion of your money, including the interest, over time. However, this will require you to spend a little extra money from your pocket in addition to the EMI. Here's how it works:
First, understand the real burden of home loan interest.
The biggest disadvantage of a home loan is its long tenure. The longer the tenure, the more interest you pay. The EMI might seem small, but the total payment becomes very large.
Let's say you have taken a home loan of ₹30 lakhs and the interest rate is 9.55% per annum.
Loan Tenure Total Payment (₹) Total Interest (₹)
15-year loan 56,55,117 26,55,117
20-year loan 67,34,871 37,34,871
25-year loan 78,94,574 48,94,574
Extending the tenure by just 5 years adds lakhs of rupees to the interest. A Systematic Investment Plan (SIP) can help you cover this high cost.
What is the SIP formula for home loan recovery?
The idea behind this formula is very simple – investing alongside your loan. The day your home loan EMI starts, also start a Systematic Investment Plan (SIP) in an equity mutual fund. The goal should be that by the time your home loan is paid off, the value of your SIP investment reaches approximately the total amount paid to the bank. Investing 20-25% of your EMI in an SIP is generally considered an effective strategy for this.
Let's understand with a calculation how you can get your entire money back.
Let's take the example of a 20-year loan.
Home Loan Details
Loan Amount: ₹30,00,000
Tenure: 20 years
Interest Rate: 9.55%
Monthly EMI: ₹28,062
Total Payment: ₹67,34,871
SIP Planning
SIP Amount: 25% of EMI = ₹7,015 per month
Investment Period: 20 years
Estimated Return: 12% per annum
Result after 20 years.
According to the SIP calculator, investing ₹7,015 every month for 20 years at a 12% annual return will result in a total fund of ₹64,52,799, which is quite close to the total principal and interest paid on the home loan. If, fortunately, you get a better return, say 15%, then your total fund will be ₹93,09,420 in 20 years, which is significantly more than the amount paid for the home loan.
What if you can't manage a 20-25% SIP?
If investing 20-25% of your EMI initially seems difficult, there's no need to worry. You can opt for a step-up SIP. In this, you start with a smaller amount, such as ₹5,000 per month, and increase your SIP by 10% every year. For example:
Starting amount: ₹5,000 per month
Annual increase: 10%
Duration: 20 years
Estimated return: 12%
So, in 20 years, your fund could reach approximately ₹93,15,692.
5 major advantages of this strategy:
Financial discipline – EMIs and SIPs run simultaneously.
Dual benefit – Debt is repaid, and wealth is created.
Reduced interest burden – Over the long term, the loan becomes almost interest-free.
Opportunity for pre-payment – If the SIP fund performs well, you can repay the loan early.
Financial freedom – A large corpus is available once the loan is repaid.
Understand these precautions before investing:
Market risk – There is no guarantee of a 12% or 15% return.
A long-term perspective is essential – Be patient for at least 15-20 years.
Choose the right fund – Large-cap or flexi-cap funds can be better options.
Impact of inflation – Remember that the value of money will decrease in the future.
Expert advice – It is wise to consult a financial advisor before investing.
Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
