Paying off a home loan is the biggest financial responsibility for most Indian families, but the interest on a home loan can become a huge expense over time.
But here is some good news: with some smart and simple techniques, you can actually learn How to Recover Home Loan interest with Smart Investments and reduce the overall cost of your loan.
In this article, we will show you how to recover home loan interest in India using a mix of safe investments and smart growth options. We will also share some real-life examples and practical guides to help you make your money grow over time and work well for you.
What is Home Loan Interest?
When you take a home loan, your monthly EMI mainly consists of two parts, which is principal and interest. Principal is the amount you actually borrowed and is the extra money you pay to the bank or lender for providing you the loan.
Let’s say, if you borrow:
- Loan Amount: Of ₹50 lakh
- Loan Tenure: For 20 years
- Interest Rate: At 8.5%
Then over 20 years, you will be paying ₹52+ lakhs just as home loan interest, which is much more than the loan itself.
So, how can you recover this huge amount of interest cost? The simple answer is by Smart investing.
How to Recover Home Loan Interest with Smart Investments
Here’s how you can easily recover home loan interest through these smart investments:
1. Start SIPs (Systematic Investment Plans)
Doing a SIP in mutual funds is a smart way to grow your money slowly over time. The wealth you build can help you recover the total interest paid on your home loan.
Example:
If you’re paying ₹30,000 every month as EMI, you can start a small SIP of ₹5,000 per month. With an average return of 12% per year, this SIP could grow to over ₹50 lakhs in 20 years, that’s nearly equal to your total interest rate.
Best SIP Option in 2025:
- Axis Bluechip Fund
- Parag Parikh Flexi Cap Fund
- Mirae Asset Emerging Bluechip Fund
2. Invest in ELSS for Tax + Returns
ELSS (Equity Linked Saving Schemes) are a smart option for saving tax and building wealth at the same time. These funds usually give average returns of 12% to 15% over the long term.
While you save the tax amount under Section 80C, you are also earning money that can help you overcome the home loan interest burden.
ELSS Highlights:
- Lock-in: Just 3 years, which is the shortest among tax-saving options
- Returns: It is mainly based on the market performance
- Tax Benefits: Up to ₹1.5 lakh under Section 80C
Pro Tip: Start an ELSS with the help of SIP for both compounding and tax savings.
3. Use PPF for Safe Long-Term Growth
If you are someone who doesn’t like to take too much risk while investing, then the Public Provident Fund (PPF) is a great option for you to choose. It has:
- Tenure: Of 15 years and also it can be extended up to 20 years.
- Interest Rate: Of 7.1%, which is compounded yearly
- Tax-Free Returns: Yes
It doesn’t give you a high-return as equity, but it is completely safe and tax-free, which makes it a good way to recover home loan interest slowly but surely.
4. Invest Lump Sum in Index Funds
If you ever get a bonus on your income, or if your fixed deposit matures, then don’t let that money sit idle. Instead of that, put it in a index funds like:
- Nifty 50 Index Fund
- Sensex Index Fund
These funds usually come low-cost, they follow the market, and have also given 10%–12% returns in the past.
Example:
Investing ₹5–₹10 lakh now could grow to ₹15–₹20 lakhs in next 15 to 20 years, which can easily help you recover a huge part of your home loan interest.
5. Claim Maximum Tax Benefits on Home Loan
Investing is not about recovering interest all the time. It also means saving money through tax deductions. Here is the tax benefits on home loan you can claim through:
- Section 25(b): You can claim up to ₹2 lakh for home loan interest if self-used.
- Section 80C: You can claim up to ₹1.5 lakh for principal repayment.
- Section 80EEA: you can claim an extra ₹1.5 lakh for affordable housing if eligible.
By decreasing your tax burden, you can save more, and that saved money can be put into SIPs or PPF, which can help you grow money through compounding over time.
6. Rent Out a Portion of Your Home
If you’re living in a 2BHK or bigger flat, you can rent out one room. Even a rent of ₹5,000 per month adds up to ₹12 lakh over 20 years.
Pro Tip: You can invest this rent in SIPs or PPF to grow it further, which helps you over a large part of your home loan interest over time.
7. Use a Home Loan Interest Recovery Calculator
Want a clear picture of how much to invest? You can always use free calculators on trading apps like Groww, Zerodha Coin, or ET Money to:
- Compare your EMI with a matching SIP amount.
- See how long it will take to recover your total home loan interest.
- Make your recovery plan more practical and personal.
Conclusion
Paying home loan interest is something we can’t avoid, but you can still make it work for you. By starting SIPs, investing in ELSS, PPF, index funds, or earning some rental income, you can slowly recover the money you’re spending on interest.
You don’t need to start big. Begin small, stay regular, and let the power of compounding grow your money. Over time, these smart steps can help you pay off your home loan faster or even build a strong retirement fund.
FAQs
Can I really recover home loan interest through SIP?
Yes, if you invest regularly through long-term SIPs in equity mutual funds, especially if your loan is for 15–20 years.
Which investment is safest for recovering home loan interest?
PPF is the best option, because it is backed by the government, gives tax-free returns, and suits low-risk investors.
How much should I invest to recover my loan interest?
Invest around 15–20% of your EMI amount every month in mutual funds or ELSS through SIP. Over time, this can help you recover the total loan interest paid.
Is ELSS better than PPF for this goal?
ELSS can give higher returns, but it comes with some risk. On the other hand, PPF is much safer but gives lower returns.
Can I use rental income to invest and recover interest?
Yes. You can invest your rental income in SIPs or index funds.