If you are thinking about taking out a home loan, you should carefully consider your interest rate, loan tenure, and EMI. The total interest paid over time can be substantial, but you can offset this burden by using the 15% SIP formula. If you are planning to purchase a home with a home loan, you should first determine the interest rate, loan tenure, and the amount you need to borrow.
A closer look at the calculations will reveal that the interest paid often exceeds the actual loan amount. Many banks have lowered their home loan interest rates in response to the Reserve Bank of India’s (RBI) rate cuts, providing first-time home buyers with significant relief.
What is the 15% SIP Formula?
A house loan’s interest payment burden can be considerably lessened with the use of the 15% SIP (Systematic Investment Plan) formula. It recommends allocating 15% of your monthly EMI to a SIP. Your SIP investments will accrue a corpus by the conclusion of the loan term that is at least equivalent to the interest you have paid.
Understanding the Savings Calculation
| Details | Amount / Percentage |
| Home Loan Amount | ₹30,00,000 |
| Interest Rate | 8.75% |
| Loan Tenure | 20 Years |
| Total Interest Paid | ₹33,62,717 |
| Total Loan Repayment | ₹63,62,717 |
| Monthly EMI | ₹26,511 |
| 15% of EMI (SIP Investment) | ₹4,000 |
| SIP Tenure | 20 Years |
| Estimated Return | 12% |
| Total Investment in SIP | ₹9,60,000 |
| Estimated Return | ₹30,36,592 |
| Total Fund Accumulated | ₹39,96,592 |
This calculation shows that you can efficiently recoup the interest expense because the total SIP fund is more than the interest paid on the house loan.
Achieving a Debt-Free Home
You can boost your SIP contributions and pay off your debt in full if you’re a wise investor.
Assuming you raise your SIP contribution to 7,000 a month, the SIP corpus after 20 years will be roughly 69,94,035 at an expected 12% annual return. This sum exceeds the 63,62,717 total loan payments, leaving your house fully debt-free.
Selecting the Proper SIP Fund
Choosing the appropriate fund for SIP investments based on your financial objectives is essential. A carefully selected fund will guarantee financial stability in addition to producing larger returns. Think about increasing your SIP contributions in line with your income. This approach will optimise long-term profits and help you become financially independent more quickly.
