Home loan EMI vs. SIP: Which is the smarter way to buy a house?

Rajiv has been saving Rs. 25,000 monthly in a SIP for five years, hoping to buy a flat. Meanwhile, his colleague Pragati opted for a housing loan from Bajaj Finserv last year and moved into her new home. While catching up during their lunch break one day, Rahul realises something startling. The flat prices in the neighbourhood he was eyeing have increased by 15% while his SIP grew only 10%.

Could saving longer with higher returns outpace rising home prices? The answer might surprise you. This article compares SIP growth against housing loan costs so you can decide which path leads faster to your dream home.

Understanding your two paths

What is a systematic investment plan (SIP)?

A systematic investment plan or SIP allows you to invest a fixed amount regularly in mutual funds. SIPs work through rupee-cost averaging, which means you purchase more units when prices fall and fewer when prices rise. This investment option provides flexibility to increase, decrease, or pause contributions based on your financial situation.

SIPs provide market-linked returns that have historically averaged 10-12% annually over long periods. However, these returns are not guaranteed and can fluctuate considerably based on market conditions.

What is a home loan EMI?

A home loan EMI is a fixed monthly payment you make towards your housing loan. Each EMI comprises two parts - principal repayment and interest payment. In the initial years, a larger portion goes towards interest, while the principal repayment increases gradually in later years.

With a housing loan, you gain immediate homeownership rather than waiting years to save the entire amount. So, you can live in your own home while paying it off, avoiding rent payments that offer no ownership benefits.

Using the home loan EMI calculator to guide your plans

A home loan EMI calculator requires three essential inputs: loan amount, interest rate, and loan tenure. These factors determine your monthly payment obligation. Bajaj Finserv provides a home loan EMI calculator that generates instant estimates with just a few clicks.

The calculator helps you compare different tenure options side by side. You can easily see how a longer loan period reduces your monthly payments but increases your total interest cost, so you can use it to find the perfect balance for your budget.

Weighing growth potential vs. ownership today

Projected SIP corpus after 5 years

A monthly SIP of Rs. 15,000 at 12% annual returns could grow to approximately Rs. 12.36 lakh in five years, assuming consistent market performance. This projected corpus differs based on actual market returns, which might exceed or fall below expectations, depending on economic conditions and fund performance.

EMI amortisation over 5 years

On a Rs. 30 lakh housing loan at 7.99% for 20 years, you would pay approximately Rs. 3.5 lakh towards principal in the first 5 years. During this time, you build equity in your property that appreciates in value, potentially at 5-8% annually, based on location and market conditions.

Tax advantages

The Income Tax Act offers significant benefits to housing loan borrowers that can greatly reduce their tax liability yearly. Section 80C allows deduction of principal repayment, while Section 24B provides deduction on interest payment.

• You can claim up to Rs. 1.5 lakh deduction on principal repayment under Section 80C and reduce your taxable income considerably.
• Interest payments up to Rs. 2 lakh qualify for deduction under section 24B, which provides additional tax savings that make a home loan more financially advantageous.

In comparison, SIP investments offer tax benefits only through Equity Linked Savings Schemes (ELSS) with a mandatory three-year lock-in period and deduction limited to Rs. 1.5 lakh under Section 80C.

Why home loans from Bajaj Finserv stand out

Bajaj Finserv offers competitive home loan options starting at 7.99% interest rate with tenures extending up to 32 years. This combination results in EMIs as low as Rs. 722 per lakh and makes homeownership accessible even with budget constraints.

The extended tenure option allows you to maintain lower EMIs while accommodating future income growth. You can always make part-prepayments later to reduce the overall interest burden when your financial situation improves.

Home loan applications are processed quickly - within 48 hours* after submission of all required documents. This quick turnaround allows you to secure your dream property without delays.

With the doorstep document pickup service, multiple branch visits are a thing of the past. The digital application process streamlines verification and approval so the entire experience is hassle-free and easy.

The housing loan products cater to various customer segments, from first-time home buyers to property investors, with loan amounts reaching up to Rs. 15 crore based on eligibility. But that's not all, Bajaj Finserv also provides top-up loans of up to Rs. 1 crore over your existing housing loan. These funds can be used for any purpose without restrictions, whether it is a home renovation, education expense, or medical emergency.

If you already have an existing home loan, you can easily shift it with the balance transfer facility that comes with attractive rates. Moreover, individual borrowers with floating interest rates enjoy zero foreclosure fees, which provides the flexibility to close your loan early without penalties.

Step into your dream home with confidence

Why wait years to accumulate funds through SIPs when you can take a housing loan today? Property prices typically rise faster than SIP returns in most Indian cities and make delayed purchases more expensive, despite your savings. Combined with tax benefits and the utility value of immediate homeownership, a home loan clearly outweighs potential SIP returns.

The table below outlines their differences across key aspects.

With its low EMI options, fast processes, and flexible tenure choices that adapt to your financial situation, Bajaj Finserv stands out as the ideal choice. Use the home loan EMI calculator on the official website to understand exactly how much you need to budget monthly. This offers you a transparent view of your financial commitment before you apply, allowing you to take the first step towards property ownership with confidence.

Visit the official website or download the app to apply today. Or continue waiting and miss out on building equity in your own home. 

Note to readers: This article is part of Mint’s paid consumer connect Initiative. Mint assumes no editorial involvement or responsibility for errors, omissions, or content accuracy.

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