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Get your dream home at half of the price, with a simple hack.

March 14, 2022
in Savings, Personal Finance
home

While many individuals take out home loans when purchasing a property, there are still a lot of individuals who either do not take out loans or take a small loan and pay the remainder in cash because they do not want to be burdened by an EMI or pay interest.

If I were to buy a house, though, I’d make a minimal down payment possible and borrow the maximum amount possible. Here’s why:

With a little forethought, I can not only retrieve my interest but also make money, making my home not only interest-free but also less expensive. Bear with me as I do some number crunching in this article.

Suppose I wish to purchase a home for Rs. 50 lakhs. I also have Rs. 15 lakhs to pay ahead. Therefore, I take out a loan for Rs. 35 lakhs.

Instead of a 35-lakh loan, I now take out a 40-lakh loan. It means I simply have to pay Rs. 10 Lakhs in advance! (Many banks and builders may approve it if you have a good credit score) 

At the present rate of interest, I’d pay a total of Rs. 33.28 Lakhs interest over 20-years.

This is where the fun begins: If I invest the remaining 5 lakhs on the day I start my EMI in a Mutual Fund that provides me an average annual return of 12%, the total return after 20 years will be 48.23 lakhs.

So, after 20 years of paying a total of Rs. 83.28 Lakhs (Down Payment + Principal + Interest) for a loaned home. My mutual fund investment of Rs. 5 lakh has already yielded Rs. 48.23 lakhs. As a result, the house will cost me Rs. (83.28 – 48.23) = 35.05 Lakhs!
The reason for this is that while a home loan is the cheapest credit available, with interest rates as low as 6.8%, smart equity investment can yield returns of anywhere between 10% and 15%. Over 20 years, the margin between the loan rate and the return rate compounds to provide a much higher return than the interest you pay.

Written by: CA Suraj Kar

To learn more, get our Journal: PW Insider for FREE!

Read Next: Taxation on Derivatives.

For more information, reach us at [email protected]

Team, MyGoalMySip.

Tags: Equity FundFUNDShome loanINVESTMENTMUTUAL FUNDMUTUAL FUNDSSAVINGS
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MyGoalMySip is an Online Mutual fund investment platform powered by Prudent Wealth. As an investor, it might be hard to find the perfect investment opportunity; therefore, we’re here to help you make an informed decision.

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    About Us

    MyGoalMySip is an Online Mutual fund investment platform powered by Prudent Wealth. As an investor, it might be hard to find the perfect investment opportunity; therefore, we’re here to help you make an informed decision.

    Our goal is to educate people and make them financially literate, and at the same time guide you in your investment journey, in short MyGoalMySip is your investment buddy.

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