POSTED BY March 29, 2011 10:46 am COMMENTS (24)ON
Hi Manish & All,
I would like to know comment from all on below thought regarding homeloan.
I have always thought that it is always beneficail to pay upfront as much money as you have and take lesser home loan amount.
However looking closely into the numbers and calculation It seems taking home loan is much more benficial than making upfront payment.
Lets take example to make it clear…
Lets say I have to make payment of 20L to builder for home purchase and I have cash available with me around 5L apart from initial downpayment for booking and other stuff.
Now I have 2 choice:
1. Pay 5L and take home loan for rest 15 L
2. take home loan for 20L and invest 5L in some safe investment.(no risk)
For Scenario 1:
15L loan for 15 years @9% turns out to be ( as per calculator available on jagoinvestor.com) :
Total amount Paid : 2738520
Total Interest amount : 1238520 (45%)
Total Principle amount : 1500000 (55%)
For Scenario 2:
20L loan for 15 years @9% turns out to be ( as per calculator available on jagoinvestor.com) :
Total amount Paid : 3651300
Total Interest amount : 1651300 (45%)
Total Principle amount : 2000000 (55%)
Difference in total amoutn paid = 3651300 – 2738520
5L investment @8% for 15 years yields ( as per calculator on jagoinvestor)
Gain = 6L+ in 15 year.
plus we would have income tax benefit on the homeloan EMI if the tax law does not changes in future.
For rising interest rate :
Loan@13% – Gain turns out to be around 3L.
Based on the above calculations it appears to me that taking a home loan is much more beneficial than making the upfront payment if you have some money to pay upfront.
Please let me know what is wrong in this calculation ( if any) and let’s discuss this to explore the options.
ONLY Negative point I could make out is Having a Home Loan will not give peace of mind.
All comments are welcome.