Offers
Rates
V-KYC
Debit Card Related
Credit Card Related
SA Welcome Kit 
Manage Mandate(s)
Get Mini Statement
categories
Bloggers
Blog collection
Press Release
Should you put your savings onto your Home Loan?
Posted on Monday, January 2nd, 2023 | By IndusInd Bank
Buying a house is one of the biggest financial decisions that we make, therefore it is critical to consider all the factors in play. When you take a home loan to buy a property, you look at the tenure and the interest rates that banks have to offer. But it is equally important to consider how much of your savings should you put into your home loan. Choosing between a bigger down payment amount or a bigger EMI is challenging, and this is exactly what Rahul is struggling with. Let’s take a look.
Rahul is a software developer who lives in a rented apartment in Gurugram with his wife and a 3-year-old kid. He now wants to buy a 3-bhk apartment in Gurugram so that his parents can also shift from their hometown in Kanpur and start living with Rahul. While scouting for houses, Rahul came across a flat which fits his preferences. The house will cost him 1 crore, of which, Rs. 15 lakhs have to be an upfront down payment. Across FDs, gold, and other investments, Rahul has Rs. 25 lakhs of savings.
Here, Rahul has two options:
1. He uses all his savings to make a bigger down payment and reduces the loan amount
2. He pays the minimum down payment amount and takes a bigger loan amount
Now, let’s take a look at the outcome of both the options to see which is a better deal for Rahul.
Option 1 – Putting all the savings into home loan
Rahul makes a down payment of Rs. 25 lakhs and avails the remaining Rs. 75 lakhs as home loan. With an interest rate of 8.6% and a tenure of 20 years, Rahul will pay:
| Total payable amount in Option 1 | |
| Principal Amount | Rs. 75,00,000 |
| Interest Rate | 8.6% |
| Tenure | 20 years (240 months) |
| EMI | Rs. 65,562 |
| Total Amount | Rs. 1,57,34,930 |
If Rahul chooses to put all his savings in the down payment to reduce the amount of his home loan, he will be paying total Rs. 1.57 crore at the interest rate of 8.6%.
Option 2 – Making only the minimum down payment
Rahul opts to make the minimum down payment of Rs. 15 lakhs. His home loan amount is now Rs. 85 lakhs. With an interest rate of 8.6% and a tenure of 20 years, Rahul will pay:
| Total payable amount in Option 2 | |
| Principal amount | Rs. 85,00,000 |
| Interest amount | 8.6% |
| Tenure | 20 years (240 months) |
| EMI | Rs. 74,303 |
| Total Amount | Rs. 1,78,32,921 |
By taking a bigger loan amount, Rahul gets to keep his mutual fund investment of Rs. 10 lakhs intact. To take a look at the gains he makes from his mutual funds investment over the period of 20 years, let’s assume that the average annual rate of return stays at 10%. Then:
| Gains made from investment | |
| Amount invested | Rs. 10,00,000 |
| Rate of Return | 10% |
| Tenure | 20 years (240 months) |
| Total Gains | Rs. 67,27,500 |
If we separate the gains that Rahul made from the total amount he paid to the bank, it comes up to Rs. 1.1 Crore. Looking at the above example, we can safely say that it is wiser to put only a portion of your savings into your home loan.
Conclusion: While making a bigger down payment does reduce the total payable amount of the borrower, there are several other factors at play that you need to consider when it comes to the home loan size and amount. Holding onto your savings is not only financially viable, but will also offer a safety blanket in case of unforeseen circumstances where you need emergency funds. Having an emergency fund can also come in handy for paying home loan EMIs during stressful financial periods. Hence, it is better to take a bigger home loan instead of spending all your savings in one go.
IndusInd Bank understands this and offers a wide range of home loan products that feature flexible tenure, quick disbursal, simplified documentation and attractive interest rates. Avail a perfect home loan for your perfect home– Apply NOW!
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
