Strategies to Eliminate Home Mortgage Interest Payments
In the pursuit of owning a home, many individuals take on substantial home loans. However, a significant portion of these loans goes towards paying interest, which can accumulate over the loan tenure. A novel approach to mitigate this burden is investing a portion of the monthly EMI into mutual funds through a Systematic Investment Plan (SIP). This strategy, often referred to as the "Good EMI" approach, has the potential to recover the interest cost on your home loan.
When you take a home loan, a considerable part of your EMI goes towards interest payments. Instead of just paying the EMI, you can simultaneously start investing a smaller monthly amount via SIP in mutual funds—typically equity or hybrid funds depending on your risk comfort. The objective is that over the long term (e.g., 20 years), the returns from this SIP investment grow enough to offset or even exceed the total interest paid on the loan.
Experts suggest investing approximately 19% to 27% of your monthly EMI amount into SIPs. For instance, on an EMI of ₹17,861 for a ₹20 lakh loan at 9% interest over 20 years, you might invest around ₹3,400 per month in SIPs to aim to recover the ₹23 lakh interest cost.
Assuming a compound annual growth rate (CAGR) of around 10-12%, your SIP corpus after 20 years could potentially grow to more than ₹30 lakh, thereby covering the interest cost. The growth benefits from compounding and systematic investing phases often described as steady growth (first 8 years) at roughly 12% p.a., followed by accelerated growth (next 4 years) where compounding gains momentum.
For relatively aggressive investors, flexi-cap or large-cap equity mutual funds might yield higher returns. On the other hand, risk-averse investors may prefer hybrid funds like balanced advantage funds that offer more stability with moderate equity exposure.
This method is not a guaranteed "secret formula" but a disciplined approach to recover your interest cost by making your money work for you in the markets alongside paying your home loan. By allocating about 20% of your EMI monthly into well-chosen mutual funds and staying invested for the loan tenure horizon (usually 15-20 years), you can benefit from compounding and market growth. This approach puts you on a path to offset the interest burden while building an investment corpus, making the overall home loan experience financially smoother and more rewarding.
To illustrate, if you invest ₹4,000 per month (0.10% of a ₹40 lakh home loan) for 20 years at a 15% annual return, the total corpus accumulated will be ₹59.88 lakhs. For a ₹40 lakh home loan at 9% interest for 20 years, the total payment is ₹86.37 lakhs, with ₹46.37 lakhs being interest. After deducting the invested amount (₹9.60 lakhs), the remaining corpus will be ₹50.28 lakhs, which is more than enough to cover the interest on a ₹40 lakh home loan.
It's essential to note that this approach requires patience and consistent investment to become a reality. There are related calculators such as Mutual Fund Calculator, Lumpsum Calculator, CAGR Calculator, and Home Loan EMI Calculator that can be useful for planning your finances. By utilising these tools and following a disciplined investment strategy, you can potentially recover the entire interest amount on your home loan.
- Instead of solely paying the home loan EMI, consider investing a portion of it into mutual funds through a Systematic Investment Plan (SIP) to potentially recover the interest cost.
- By utilizing a lumpsum calculator, you can determine the initial investment required to achieve a specific investment corpus after a specified period.
- If you're looking to invest in mutual funds, it's crucial to consider your risk comfort, as experts suggest investing in either equity or hybrid funds.
- For a home loan EMI of ₹17,861 for a ₹20 lakh loan at 9% interest over 20 years, approximately 19% to 27% could be invested into SIPs, totaling around ₹3,400 per month.
- Given a CAGR of around 10-12%, a SIP investment over 20 years could potentially grow to more than ₹30 lakh, helping to offset or exceed the total interest paid on the home loan.
