Meet Rahul Sharma from Mumbai!
We all have availed for a housing loan at some point or the other. In fact, with today’s real estate prices in Metros, for most of us, it is not possible to acquire a property without a home loan.
Although the home loan rates are on a decline (which will not be so for a long time), a buyer still ends up paying more than double of what he avails as a loan. This heavily impacts the capital appreciation that all of us expect from real estate. And considering that the capital appreciation is not as great as it used to be 20 years ago, this just makes the situation even worse.
In this short article we try to find how can we reduce the impact of this interest payment without putting much effort.
Let’s Consider this:
Rahul buys a 2BHK for his family in Thane.
While the property’s price is Rs 1.2 Crores, Rahul avails a home loan of Rs 95 Lakhs at the lowest rate of 8.65% for 20 years.
His loan statement should look pretty much like this:
Now, coming to the point: How does Rahul reduce the impact of this interest payable?
While starting the repayment for this home loan, Rahul needs to put aside another 0.1% of the loan amount (i.e. Rs 9,600) and start investing it into an SIP (Systematic Investment Plan) vehicle. He needs to continue doing so for the tenure of the loan, which is 20 years.
One can expect a very nominal returns of about 15% over this tenure. SIPs use the POWER OF COMPOUNDING, so even after considering market fluctuations, these vehicles do end up delivering great results. In 2015 some SIPs even performed at the rate of 35%.
Hence, his SIP statement should look something like this:
NOW, considering the Home Loan & SIP statements – Rahul pays Rs 1.06 Crores in interest towards the home loan and earns Rs 1.22 Crores as interest from the SIP. Thus effectively nullifying the net effect of the interest that Rahul would have paid towards the home loan.
While we do these calculations and see how Rahul clawed back 100% interest and frees up his apartment from mortgage, we also need to consider the following:
Rahul gets back the Rs 23.04 Lacs he invested as capital in SIP
Because he availed a home loan he saved Income Tax to the tune of Rs 10 Lacs.
Considering all the factors involved, this is what Rahul’s final tally looks like:
So not only he clawed back the interest worth of Rs 1.06 Crores but also compulsorily saves Rs 23 Lacs which can now use to purchase a brand new car!
SAVING MONEY ALWAYS SEEMS DIFFICULT – BUT IT’S NOT!!
By being smart and acting responsibly, Rahul has put away today’s pleasures and ensure to save a lot of money for his family. It’s not rocket science to guess what all he can do with this money he saved!
Ab Yeh Hui Na Happy Ending!
*You can get in touch with us if you need help saving interest on your home loan EMI.
*All images belong to their respective owners and are used for indicative purposes only.