Home Loan: Pay Less, Save More! Check How RBI's Repo Rate Cut Can Improve Your Overall Savings

The Reserve Bank of India (RBI) has announced a 25 basis points (BPS) reduction in the repo rate, bringing great relief to home loan borrowers. This move will lower interest rates on home loans, helping borrowers save money in the long run. Here’s how this rate cut impacts you and your savings.

Repo Rate Cut: What It Means for Home Loan Borrowers

All floating-rate home loans issued after October 1, 2019, are linked to an external benchmark, primarily the repo rate. Whenever the RBI reduces the repo rate, banks are required to pass on this benefit to customers. This means lower interest rates and potential savings on home loans.

For those who took a home loan before October 1, 2019, and have it linked to the Marginal Cost of Funds Based Lending Rate (MCLR), refinancing the loan could be a smart option to take advantage of the lower interest rates.

Impact on EMIs and Loan Tenure

When the RBI cuts the repo rate, banks generally do not reduce the EMI (monthly instalment) but instead shorten the loan tenure. This allows borrowers to repay their loans faster while saving on interest payments.

For example, if a borrower has a home loan of Rs 75 lakh at 9% interest for 20 years, and after 36 months the interest rate drops to 8.75%, the total interest paid will reduce from Rs 1.62 crore to Rs 1.57 crore. This leads to a saving of Rs 4.97 lakh, and the loan gets cleared seven months earlier.

How Much Can You Save?

If the rate cut happens within 24 months of taking a loan, the savings can be even higher. In such cases, borrowers can save around Rs 5.8 lakh in total interest payments and close the loan eight months earlier.

The RBI’s repo rate cut is a golden opportunity for home loan borrowers to save on interest and reduce their loan tenure. If you have an older loan, consider refinancing to benefit from lower rates. Always stay updated with RBI’s policies to maximise your savings on home loans.