Nowadays most people buy houses by taking home loans. But when the EMI of a home loan is deducted every month, the loan starts bothering. In such a situation, everyone thinks about finishing that loan as soon as possible. If there is an increment, change of job or increase in income from any other source, then everyone looks for ways to finish the loan quickly by making prepayment from it. But many times experts believe that instead of repaying the home loan, it is better to invest that money in SIP and earn maximum profit. If you are also confused about this, then understand here when which decision can be a profitable deal for you. You will earn more from SIP than you save in interest from prepayment.

If your salary has increased and you think that you can repay your home loan as soon as possible by increasing the EMI with the increased salary, then calculate the SIP returns and the interest charged on the home loan once. Through SIP, you can earn a very good profit in the long term. Sometimes it is much more than the interest charged on your home loan. In such a situation, instead of repaying the home loan early, if you increase the investment in SIP, you will get more profit. If you decide to repay the home loan before time, your net worth will decrease. On the other hand, increasing the SIP will increase the net worth.

Understand how through calculation.

Suppose the home loan you have taken is being charged 9 percent interest. On the other hand, the average return in mutual funds is around 12%, which works to increase your wealth rapidly with compounding. If your loan is 20 lakhs and its tenure is 20 years, then at the rate of 9% interest, your EMI will be Rs 17,995. The interest will go to Rs 23,18,685 and you will pay a total of Rs 43,18,685 including interest in 20 years.

Now after your salary increases, you want to increase the EMI by paying about Rs 9,000 so that your loan gets over soon. In such a situation, you will get benefits in the interest of home loan. By increasing about Rs 9091, your tenure will be reduced from 20 years to 9 years. Your EMI will increase to Rs 27,086. You will have to pay a total of Rs 9,25,268 as interest and including the interest, you will pay a total of Rs 29,25,268, which means you will save Rs 13,93,417 as interest.

How will you get profit from SIP?

Now if you let the home loan run for 20 years and instead of increasing the EMI of the home loan by Rs 9091, invest it in SIP. Let this SIP run for 20 years i.e. for a tenure equal to the home loan. In this case, you will invest Rs 21,81,840 in 20 years at the rate of 12% return. You will earn an interest of Rs 61,80,583 and accumulate Rs 83,62,423 in 20 years. It means that even if you make a prepayment, you will save only Rs 13,93,417 as interest. If you keep the home loan running for 20 years and invest your additional income in SIP for the same tenure as the home loan, you will earn Rs 61,80,583 from interest alone. In such a situation, it would be better if you invest your money in SIP and earn profit instead of making home loan prepayment.

Disclaimer: This calculation has been done on an estimated basis, consult your financial advisor once before taking any decision.

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