When purchasing a home, structuring your down payment and loan effectively is key. Should you opt for a higher down payment to lower your EMI, or is it wiser to take a larger loan and invest the surplus?
Let’s break down a scenario:
You plan to buy a house worth ₹1 crore and have ₹50 lakhs available.
Three Approaches to Consider:
Loan Amount:
Should you take a ₹90 lakh loan (putting down just ₹10 lakhs) or go for a ₹50 lakh loan (using the entire ₹50 lakhs as a down payment)?
EMI Choices:
With a standard 30-year term at 9%, a ₹90 lakh loan would have an EMI of ₹72,416, while a ₹50 lakh loan would come with an EMI of ₹40,000.
What if you decide to utilize your full repayment capacity of ₹1 lakh per month in both scenarios?
Investment Strategy:
Scenario 1:
Take the ₹90 lakh loan, pay the standard ₹72,416 EMI, and invest the remaining ₹27,584 monthly.
Additionally, invest the ₹40 lakhs left from your savings. Assuming a conservative 12% return, your investments could grow to ₹73 lakhs in 3 years and 4 months. With a systematic withdrawal plan (SWP) of ₹73,000 per month, this portfolio can cover your EMI entirely without impacting the principal amount.
Scenario 2:
Opt for a ₹50 lakh loan with a ₹40,000 EMI, but continue paying ₹1 lakh per month. This approach would allow you to fully repay the loan in just over 5 years. However, you wouldn’t have the ₹40 lakhs or the potential ₹73 lakhs in investments.
Our Recommendation:
Take a larger loan and invest the difference. This way, you maintain liquidity, enjoy tax benefits, and potentially pay off the loan earlier while simultaneously building wealth.
Smart financial planning is not only about reducing liabilities but also about optimizing every rupee to achieve your goals faster. 🏠💸
DM me for the Excel handbook with this calculation. 📊
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