SIP for Home Loan Interest Recovery: Unlock Financial Freedom

Managing the finances can be challenging for a homeowner. They often struggle with the balance between owning a home and managing the costs of Equated Monthly Installments (EMIs). That’s when Systematic Investment Plans (SIPs) comes into picture. 

SIP for home loan offers a dual solution: achieving financial goals and easing the burden of home loan interest. Read further to understand the strategic role of what is SIP in home loan, and pave your way to long-lasting financial security. 

How Much Home Loan Cost You?

Home loans can become substantial financial commitments. Let's break down the costs for different loan amounts:

Tenure (in years)	30	30	30
Loan Amount	5000000	7000000	10000000
Rate of Interest (p.a.)	8.45	8.45	8.45
EMI	₹38,269	₹53,576	₹76,537
Total Interest	₹8,776,710	₹12,287,393	₹17,553,419
Total Repayment	₹13,776,710	₹19,287,393	₹27,553,419

For a loan amount of ₹5,000,000, the corresponding EMI is ₹38,269, resulting in a total repayment of ₹13,776,710, with ₹8,776,710 constituting the total interest paid. 

As the loan amount increases to ₹7,000,000 and ₹10,000,000, the EMIs rise to ₹53,576 and ₹76,537, leading to higher total repayments of ₹19,287,393 and ₹27,553,419, respectively, accompanied by increased total interest payments.

How Can SIPs Help You Recover This Interest Amount On Your Loan? 

Wondering how to make a home loan interest-free? SIPs (Systematic Investment Plans) are financial lifelines which help you reach your money goals while also helping you deal with large home loan payments. 

When you're on the journey to own a home, dealing with  EMIs (Equated Monthly Installments) is part of the deal. These monthly payments are comprised of two components: one portion goes towards the repayment of the principal amount for the home, while the other serves as an allocation for the accrued interest.

How SIPs Make a Difference

SIPs, or small regular investments in mutual funds work by spreading your investment across different market levels, making it less affected by market ups and downs and enabling consistent savings in smaller amounts. 

These stable and well-regulated savings not only contribute to achieving various financial goals but also serve as a means to recover the interest paid on your home loan. 

By investing these savings in best sip for home loan, you generate returns that can offset the costs associated with your home loan EMI payments. For instance, if you allocate 0.1% of your home loan amount to an SIP on a monthly basis throughout the 30-year loan tenure, you have the potential to recover the interest paid on the home loan within approximately 25 years.

If you're debating between managing EMIs and exploring alternative strategies like SIP on home loan, dive into the EMI VS SIP Debate in our comprehensive blog.

How can SIPs help you recover this interest amount on your loan?

Recovering interest on your home loan with SIPs is a straightforward process. Follow these  simple steps to obtain an interest-free home loan.

Calculate Your Home Loan Interest

Use an EMI calculator to project the total interest you'll pay over the loan term. Enter the loan amount, interest rate, and tenure. Hit submit to obtain a projection of your total interest payments.

Explore Home Loan SIP Investment

Determine the amount you need to invest through SIP to recover the interest paid on your home loan.

Choose Mutual Funds

Select suitable mutual funds aligned with your financial goals and kickstart your journey towards financial freedom.

If you're considering buying your dream home, our blog on Smart Tips for Buying Your Dream Home provides you insights.

How to Calculate SIP?

You can calculate your SIP maturity amount using this formula:

Amount invested × ({[1 + Periodic rate of interest] Total number payments – 1} / Periodic rate of interest) × (1 + Periodic rate of interest).

Interest rates for SIPs across different mutual funds can show variations. On average, large-cap equities typically yield returns ranging from 12% to 18%. Meanwhile, mid-cap equities are anticipated to provide returns in the range of 14% to 17%. Conversely, for long-term debt-based mutual funds, investors can expect a more moderate return, typically falling within the range of 6% to 9% per annum.

By applying the SIP maturity formula, let's explore examples showcasing how disciplined SIP investments can offset interest payments for varying loan amounts.

Loan Amount 50 Lakh 

Home Loan Amount	₹5,000,000
Interest Rate	8.45
Tenure (in years)	30
EMI	₹38,269
Total Amount	₹13,776,710
Total Interest	₹8,776,710
Monthly SIP Amount	₹4,500
Expected Annual Return from SIP	12
Maturity Value	₹15,884,612

In this case, The borrower has taken a home loan of ₹5,000,000 with an interest rate of 8.45% for a tenure of 30 years. The total amount paid over the loan term (including principal and interest) is ₹13,776,710, out of which ₹8,776,710 is the total interest paid.

To recover this interest amount, the borrower decides to invest in SIP. They choose to invest ₹4,500 monthly with an expected annual return of 12%. The maturity value of this SIP investment after 30 years is projected to be ₹15,884,612.

Therefore, by making a disciplined SIP investment, the borrower has the potential to recover the interest paid on the home loan over the tenure. 

Below are two more similar examples for your reference.

Loan Amount 70 Lakh 

Home Loan Amount	₹7,000,000
Interest Rate	8.45
Tenure (in years)	30
EMI	₹53,576
Total Amount	₹19,287,393
Total Interest	₹12,287,393
Monthly SIP Amount	₹7,000
Expected Annual Return from SIP	12
Maturity Value	₹24,709,396

Loan Amount 1 Crore

Home Loan Amount	₹10,000,000
Interest Rate	8.45
Tenure (in years)	30
EMI	₹76,537
Total Amount	₹27,553,419
Total Interest	₹17,553,419
Monthly SIP Amount	₹10,000
Expected Annual Return from SIP	12
Maturity Value	₹35,299,138

For a comprehensive understanding of investment strategies beyond SIPs, explore our Ultimate Guide to SWP.  And If you're debating between managing EMIs and exploring alternative financial strategies, dive into our EMI VS SIP Debate blog.

Managing EMIs is easier when you know how to balance the costs. SIP for Home Loan plays a vital role in recovering this interest. Calculate your home loan interest, choose suitable mutual funds and start investing strategically for a stress-free journey toward your dream home. NoBroker can guide you through potential challenges, ensuring a seamless process. Contact us today for expert assistance regarding all Home Loan Services.

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