Taking a loan is often considered detrimental to one’s financial well-being, primarily due to the burden of paying interest on the borrowed capital, which often impacts one’s financial plan. Most experts, therefore, advise against opting for a loan to buy an expensive asset and instead suggest accumulating the money needed before making such a purchase.

While such advice might be appropriate when it comes to purchases that are classified as “wants,” for things that are classified as “needs,” it’s often difficult to avoid availing of a loan.

A house purchase is a classic example—many people who value the security and stability that comes with owning a house often do not mind availing of a loan to buy one. However, this doesn’t take away the pain of making interest payments over the tenure of the loan, which often tends to be quite long in the case of a home loan.

For example, if you take a loan of ₹20 lakhs over 20 years at an interest rate of 9% p.a., the total interest amount that you will end up paying over 20 years will be higher than the amount you borrowed. Your EMI in this case will be ₹17,861, and the total amount you will end up paying over 20 years is close to ₹43 lakhs—that’s almost ₹23 lakhs of interest cost on a loan of ₹20 lakhs.

While the interest you pay is justifiable as the cost of borrowing, there’s no doubt that it will hurt your finances.

"But here’s an interesting hack that home loan borrowers could consider to recover such interest amounts, so that the pinch of paying such interest on a home loan feels relatively easier," says Nilesh D. Naik, Head of Investment Products, Share.Market (PhonePe Wealth).

"No, it’s not a secret formula to help you recover the interest paid on your loan, but it’s a simple method where you aim to offset such interest costs by parallelly making a small monthly contribution to an investment product—something I would like to call a Good EMI,” he said.

“The exact investment product could depend on your comfort and risk tolerance. For example, a flexi cap or a large-cap equity mutual fund may be an interesting option for relatively aggressive investors, whereas a hybrid fund, such as a balanced advantage fund, can suit cautious investors who are not comfortable with the sharp ups and downs in the market," he added.

Since the returns on such investments could vary, let’s look at two different scenarios with different expected returns and monthly amounts required to be invested via systematic investment plans (SIP) to recoup the total interest paid on your home loan.

At 12% CAGR, you would have to start a SIP of approximately ₹3,400 (~19% of the EMI amount) to be able to recoup the entire interest cost of approximately ₹23 lakhs in the form of gains on your investment. To achieve this outcome at 10% CAGR, the monthly investment amount required would be approximately ₹4,800 (~27% of the EMI amount).

This means your total monthly outgo will be ₹17,861 as EMI, plus ₹3,400 towards investment (assuming a 12% rate of return), amounting to ₹21,261. However, do ensure this aligns with your risk tolerance before proceeding.

“As they say, personal finance is more ‘personal’ than ‘finance’. So, your personal circumstances may make it inevitable for you to avail of a home loan to purchase a house,” said Naik. But the key lies in balancing these responsibilities with a proper investment plan, so that it doesn’t end up derailing your financial plan. By setting up a monthly SIP alongside your loan EMI, you’re not just repaying a loan, but you’re also building a financial cushion for the future.