Owning a home is a dream cherished by many. However, the financial burden of a home loan and hefty EMIs (Equated Monthly Installments) can be overwhelming. In recent years, some financial experts have suggested an alternative path: instead of committing to a long-term EMI, why not invest the same amount in a Systematic Investment Plan (SIP) and build wealth to buy a house outright later?
This leads to an important question: Is it better to take a home loan or invest through SIPs to buy your dream home? Let’s work on the numbers.
Understanding Home Loan Costs
Imagine you take a home loan of Rs 75 lakh for 20 years at an annual interest rate of 9%.
-
Your EMI would be around Rs 67,480 per month.
-
Over the loan tenure, the total interest paid would be approximately Rs 86,95,066.
-
The total outflow (principal + interest) would be close to Rs 1.62 crore.
This means for a house worth Rs 87.5 lakh today (assuming Rs 75 lakh loan + Rs 12.5 lakh down payment), you end up paying nearly double over 20 years, factoring in interest.
Potential Earnings From SIP Investment
Now, let’s explore the investment route.
If you invest Rs 67,480 per month in a Mutual Fund SIP assuming an annual return of 12%, here’s what happens over 20 years:
-
Total invested amount: Rs 1,61,95,840
-
Maturity amount: Rs 6,20,71,974
-
Total returns earned: Rs 4,58,76,134
In simple terms, your Rs 1.61 crore invested over 20 years could grow to over Rs 6.2 crore.
Now, adjusting for inflation at 6% annually, the cost of a house currently priced at Rs 87.5 lakh would rise to approximately Rs 2.8 crore after 20 years.
Comparing The Two Options: Which Is Better?
If you choose the home loan route:
-
You would pay about Rs 1.62 crore over 20 years for a house originally costing Rs 87.5 lakh.
-
In 20 years, the house value could appreciate to Rs 2.8 crore.
If you opt for SIP investment:
-
Your investment could grow to around Rs 6.2 crore.
-
After buying a house worth Rs 2.8 crore, you’d still be left with nearly Rs 3.4 crore in surplus wealth.
Clearly, SIP investments offer greater wealth creation and more flexibility compared to a home loan. However, it’s important to remember that investments in mutual funds are subject to market risks and require financial discipline and a long-term commitment.
Conclusion
While taking a home loan ensures immediate possession of a home and fulfills emotional security needs, investing via SIPs can build far greater wealth over time. If your priority is immediate homeownership, a home loan is the way to go. But if you can defer buying and focus on wealth creation first, a disciplined SIP strategy could offer you not just a dream home — but also significant financial freedom.
Ultimately, the better option depends on your individual goals: immediate homeownership or long-term wealth building. Assess your risk appetite, financial goals, and personal circumstances carefully before choosing your path.
