One of the most haunting issue that we face today is Home loan EMI…Because of this big EMI we are unable to save anything. Here is a solution which will hopefully give you some respite…
We usually try and opt for a lower home loan tenue to be able to close the loan faster…Here is a Contra view…
Assuming you plan to take a home loan for 15 yrs. Now…if instead of 15yrs, you take the loan for 25 yrs and hence your EMI amount reduces and you invest the difference in a good equity fund…lets see…how this would help…
| Home Loan Amount | 50 Lakhs | 50 Lakhs |
| Interest Rate | 9.50% | 9.50% |
| Loan Tenure | 15 Yrs | 25 Yrs |
| EMI | Rs 52,211 | Rs 43,685 |
| Breakup of Total Payment | ||
| Principal | 50 Lakhs | 50 Lakhs |
| Interest | 44 Lakhs | 81 Lakhs |
| Total | 94 Lakhs | 1.31 Cr |
As you can see from the above table when you increase the tenure, while your monthly EMI is reduced, the total interest payable is substantially higher.
The important thing now is to invest the difference in EMI, which in this case is Rs 8526 and then compare the difference….
| Investment | Equity MF | Equity MF |
| CAGR | 12% | 15% |
| Tenure | 25 Yrs | 25 Yrs |
| Monthly investment/SIP | Rs 8526 | Rs 8526 |
| Future value | 1.45 Cr | 2.35 Cr |
As you can see if you invest the difference in EMI as an SIP, at the end of the tenure, you would have closed the loan and would have built a good corpus for yourself.
Now if you don’t want to continue the full 25 yrs, This SIP will help you close the loan in 13 to 14 yrs.
Hence extending the tenure and using the difference effective is an option, you should definitely consider.
We can help you plan & invest for a lot of things like this…email to book an appointment for a discussion – Invest@smartserve.co or call 9916804769
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Happy Investing.
Regards
Robin