Ritesh Sabharwal CFP®

W.M.W #11: The 12.5% secret that makes your home loan interest-free

Reading time: 3 minutes - August 30, 2025

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Hey Reader

If you’ve ever taken a home loan or there is one currently going on, you know this pain — you borrow ₹80 lakhs as principal amount, but end up paying way more than that just in interest over the loan’s tenure.

Let’s break this down with an example:

But here’s the twist — there’s a way to “recover” this interest without breaking your back.

3 Steps to Recover Your Home Loan Interest

1. Save a small % of your EMI - Take just 12.5% of your EMI (around ₹8,700 in this example).

2. Invest it every month - Put this amount into a Systematic Investment Plan (SIP) - consistently for the same 20 years (240 months).

3. Let compounding work for you - Assume an average 12% return per year. Over 20 years, this happens::

• Amount invested: ₹20.9 lakhs
• Returns: ₹66 lakhs
• Total Value: ₹86.9 lakhs

That’s almost equal to the total interest you paid on the home loan.

Big Question: "I already struggle with my EMI, how can I save more?"

1️⃣ Redirect annual bonuses & increments

• Every time your salary increases, don’t inflate lifestyle expenses immediately.
• Commit the first 10–15% of increment directly to this SIP.

2️⃣ Cut one “luxury expense” & redirect it

• Example: 2 OTT subscriptions = ₹500/month.
• Weekend dining/Swiggy-Zomato = ₹2,000–₹3,000/month.
• Redirecting just 1-2 expense categories can free up ₹2,500-₹3,500 easily.

3️⃣ Automate the SIP on EMI date

• Set SIP to auto-debit on the same date as EMI.
• This way, you’ll treat it like a non-negotiable bill, not an “optional saving.”

4️⃣ Use other measures smartly

• Tax refunds, incentives, or festival bonuses – instead of splurging it all, divert some to the SIP.
• Even a lump-sum top-up once a year can reduce the monthly burden.

5️⃣ Start smaller & step up yearly

• If 12.5% feels too high today, start with 5–7% of EMI.
• Step it up by 1–2% each year (when income grows).
• In 4–5 years, you’ll reach the target without feeling the pinch.

See I get it:

• You are already paying an EMI, now how to get extra money?
• But remember the home unless for investment purposes will yield no return except you staying in it?
• Also the house is not liquid, you can't sell one room for getting some money when needed.
• This 12.5% strategy almost forces you to save and generate a corpus that can be liquidated and you essentially get your house interest free.

Here’s what you learned today:

• Home loans can cost you almost as much in interest as your principal.
• By saving just 12.5% extra of your EMI and investing smartly, you can recover that entire interest.
• You don’t need to find “extra” money. You just need to redirect existing cashflows smartly.

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