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Home Loans ensure you don't have to wait till retirement to own your place. It's better to pay your Home Loan EMIs than pay house rent forever. After all, rent is one of the biggest expenses incurred.

While no lender will give you a Home Loan without interest, you can recover your interest amount. The idea is to create assets that will pay for your liabilities over time.

 Calculate Your Home Loan Interest Amount

Let's assume your Home Loan amount is INR 50,00,000/-.

The Home Loan tenure is 25 years.

Home Loan interest rate = 8.5%

Use a Home Loan EMI calculator to get your Equated Monthly Installments (EMIs) = INR 40,261/-

The total amount payable per year = INR 40,261 * 12 = INR 4,83,132/-

Over 25 years you pay a total (Principal plus interest) of = INR 1,20,78,300/-

Your total Home Loan interest amount = INR 70,78,300/-

So, rounding off, to make your Home Loan interest-free, you have to earn returns equal to INR 71 lakhs/- in 25 years.

How to Invest so Your Home Loan Becomes Interest-free?

You can use many investment vehicles to earn back your Home Loan interest amount. Let's consider a Mutual Fund SIP (systematic investment plan) here.

The term of your Mutual Fund SIP should be equal to your Home Loan tenure. In continuation with the above example, the Mutual Fund SIP term is 25 years.

Twenty-five years make a long term. So, Equity Mutual Funds are a suitable investment choice. They give higher returns. If you adopt a disciplined approach, they can deliver 10 to 15 per cent returns over the term or even more.

For calculations, let's suppose you earn 11% annualized returns from your Mutual Fund SIP.

Your investment should earn you a total amount of INR 71 Lakhs as interest. Plus, the amount you invest should also grow to prevent the deterioration of its value. For which, you will have to invest INR 10,000/- per month.

Your monthly SIP amount is approximately equal to 0.2% of your Home Loan principal amount.

0.2% of your Home Loan principal = INR 10,000/-

If you invest INR 10,000/- per month for 25 years, you will invest a total of INR 30 lakhs.

By growing at a rate of 11% per year, your total corpus will be INR 1.6 crores.

Subtract INR 71 lakhs from INR 1.6 crores = INR 8,900,000/-

Further, subtract your total SIP investment amount =

          INR 89,00,000 – INR 30,00,000= INR 5,900,000/-

When you invest 0.2% of your Home Loan principal amount per month, you recover your Home Loan interest amount.

By growing at a rate of 11% per year, your SIP investment amount almost doubles.

What if you invest only 0.1% of your Home Loan principal amount per month?

Most people say you should invest 0.1% of your Home Loan principal amount to recover the interest.

Let's look at how the calculations work out using the above example.

0.1% of INR 50,00,000/- = INR 5000/-

         Your Mutual Fund SIP investment amount = INR 5,000/-

         Total investment amount over 25 years = INR 15,00,000/-

Growing at the rate of 11% per year, your total corpus after 25 years = INR 79,52,906/-

          Total interest earned = INR 64,52,906/-

Hence, when you invest 0.1% of your Home Loan principal amount, you don't earn your entire interest unless you get interest rates that are 15% and above.

Keep in mind that the total corpus of INR 79.5 lakhs also includes the INR 15 lakhs that you have invested.

When you invest, the goal is not to only recover your Home Loan interest. Your invested amount should also grow, so that is doesn't lose its value over 25 years, due to inflation. The recovery shouldn't cost you the extra money. But, only the use of it.

To conclude, a home is not an asset until you sell it for profit. So, when you buy liabilities, borrow as less as possible. Invest in a disciplined manner to recover the price you pay for debts.

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