How to recover the interest on a mortgage with Sip?


A home loan is an easy way to buy your dream home and pay it off comfortably in Equal Monthly Installments (EMI). Since the costs of ownership are very high, especially in urban areas, many buyer credit terms vary between twenty and thirty years.

The interest rate charge on these multi-year home loans is sometimes equal to the loan amount or even more than double the repayment output. Besides prepaying the principal, are there ways to reduce or offset this interest charge over the long term?

Experts say the answer to this question is to initiate a systematic investment plan (SIP) in equity mutual funds or index funds.
In an interaction with CNBC-TV18, Nitin Mathur, CEO of Tavaga Advisory Services, said that if borrowers start a SIP equal to 10% of the monthly payment amount from the start of the EMI home loan, the full cost of the home loan can be recouped.

Mathur explains this with an example.

“On a 25-year Rs 30 lakh mortgage (at 6.75 percent interest), an individual has to repay around Rs 62 lakh, more than double the principal amount. At the same time, by investing only Rs 6 lakh (10% of the monthly payment) in mutual fund SIPs over 25 years, one can build up a corpus of around Rs 66 lakh (with an estimated return of 15% per month). an) ”, Mathur mentioned.

Supporting Mathur’s point of view, Anil Pinapala, CEO and Founder of Vivifi India Finance, said that if one has disposable income after all payment obligations, it is always a good idea to start a SIP.

“This would help save more than the returns on fixed deposits and can be seen as offsetting against mortgage interest. However, investments in mutual funds are subject to market risk and, therefore, investors are advised to evaluate the fund in which they wish to invest based on their current and immediate flat-rate cash requirements, ”a he warned.

For the uninitiated, SIP allows investors to park money in small amounts and at regular intervals. This instills a habit of saving and investing regularly and thus builds financial discipline in the life of the investor. In addition, it allows an investor to place the money at different levels of the market cycle and therefore builds long term wealth. When the markets are high the monthly SIP would buy fewer units and when the markets are low the same monthly SIP would buy more units. This means that over time one can get a solid return, without paying very high prices for a unit.

Disclaimer: The opinions and investment advice expressed by the investment experts on CNBCTV18.com are theirs and not those of the website or its management. CNBCTV18.com advises users to consult with certified experts before making any investment decisions.

(Edited by : Ajay Vaishnav)

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