For any middle-class person, buying a home is probably one of the biggest financial decisions of their life. They invest their lifetime savings in it — first, by using everything they’ve saved for the down payment, and then through EMIs for the next 20–30 years, depending on their repayment capacity and age. In a home loan, people usually end up paying more in interest than the principal amount over 20 years. Now imagine if you could invest in a plan that helps you earn returns equal to or higher than the total interest outgo — making your loan effectively interest-free by the end of the tenure.
In this article, we’ll see how investing just 10% of your home loan EMI in a Systematic Investment Plan (SIP) can potentially help you earn more than the total interest you pay on your home loan. Calculations show that this is indeed possible. With a smart investment strategy, you can not only cover the interest part of your EMI but also build a good amount of wealth on the side.
Interest Vs. Principal Amount
Let’s assume you take a home loan of Rs 50 lakh from a bank for a tenure of 20 years. Currently, the average interest rate on home loans is around 8.25%–8.50%.
Total home loan: Rs 50 lakh
Interest rate: 8.50%
Loan tenure: 20 years
EMI: Rs 43,550
Total interest paid: Rs 54.52 lakh
Total payment to bank (principal + interest): Rs 1,04,51,885
It is clear that on a Rs 50 lakh loan, you end up paying more than Rs 54 lakh in interest alone.
Now, here’s a scenario where you start investing 10% of the home loan EMI in a mutual fund SIP.
Let’s look at this simple example. Suppose your monthly home loan EMI is Rs 43,550. You decide to invest 10% of this amount in a Systematic Investment Plan (SIP) from the very beginning — that’s about Rs 4,355 per month. For simplicity, let’s round it off to Rs 4,500.
You can start this SIP in a good mutual fund scheme after doing proper research, since your investment horizon will be around 20 years — the same as your loan tenure. Assuming an average annual return of 15%, which many equity-oriented mutual funds have historically delivered over the long term, this SIP can grow into a sizeable amount over time.
SIP calculator
Monthly SIP: Rs 4,500
Estimated annual return: 15%
Tenure: 20 years
Value of SIP after 20 years: Rs 68,21,797 (Rs 68.22 lakh)
Total investment: Rs 10,80,000 (Rs 10.80 lakh)
Gains (interest earned): Rs 57,41,797 (Rs 57.42 lakh)
Over 20 years, you would have invested Rs 10.80 lakh in the SIP, which grows to Rs 68.22 lakh. Even after deducting your principal investment of Rs 10.80 lakh, you are left with over Rs 57 lakh — more than the total interest paid on your home loan. In other words, your loan can effectively become interest-free.
Note: This information is based on home loan and SIP calculators and is for illustrative purposes only. It should not be considered investment advice. Investments carry market risks, so always consult a financial advisor before investing.
Note: This content has been translated using AI. It has also been reviewed by FE Editors for accuracy.
