RBI Rate Cut: Lower EMIs on home loans; How much can you save?

The Reserve Bank of India (RBI) has surprised the market by lowering the repo rate to 6.25%. This move is expected to benefit both new and existing home loan borrowers, making home ownership more affordable for many. When the RBI cuts interest rates, banks generally follow suit by reducing lending rates, leading to lower EMIs for borrowers. But how much can you actually save on a Rs 30 lakh home loan over 20 years? Let’s break it down.

Impact of the Rate Cut on Home Loan EMI

Consider a borrower with a Rs 30 lakh home loan over a 20-year tenure. Before the rate cut, banks were offering loans at an interest rate of 8.50%, resulting in an EMI of Rs 26,035 per month. With the repo rate cut, banks are expected to lower the interest rate to 8.25%, reducing the EMI to Rs 25,526. This translates into a monthly saving of Rs 509 and a total saving of Rs 1,22,175 over the loan tenure.

For an example:

Before the interest rate cut, the EMI was ₹26,035, with a total interest payment of ₹32,48,407 over 20 years. After the rate cut to 8.25%, the EMI reduces to ₹25,526, bringing down the total interest paid to ₹31,26,232. This results in a savings of ₹509 per month and ₹1,22,175 over the entire loan tenure.

What This Means for Borrowers

For new borrowers, this rate cut means lower EMIs, making home loans more affordable. Existing borrowers can consider refinancing, negotiating better terms with their current lenders, or opting for a balance transfer to take advantage of lower rates.

Boost for the Real Estate Market

Experts believe this move will have a positive impact on the real estate sector, particularly in the affordable and mid-range housing segments.

Sandeep Mangla, MD of Forteasia Realty Pvt. Ltd., notes that while the effects won’t be immediate, borrowers will start feeling the benefits in the next 2-3 months as banks adjust their rates.

Gaurav Kansal, Director of KBP Group, highlights that the lower interest rates will not only benefit home buyers but also reduce construction costs for developers, leading to increased competition in the market.

Siddharth Maurya, MD of Vibhavangal Anukulakara Pvt. Ltd., calls this a ‘trigger effect’ that encourages hesitant buyers, particularly in their 30s and 40s, to enter the housing market. Developers could also see a 1-2% reduction in project costs, further improving affordability.

Key Takeaways

Lower EMIs – A 25 bps rate cut means savings of Rs 509 per month, totaling Rs 1.2 lakh over 20 years.

Better Loan Terms – Existing borrowers can explore refinancing options, negotiate lower rates, or transfer balances to new lenders.

Increased Housing Demand – Lower borrowing costs make home ownership more accessible, boosting the real estate market.

Affordable Construction – Developers may benefit from reduced financing costs, leading to competitive pricing in housing projects.

Final Thoughts

While a Rs 509 monthly saving may seem small, over 20 years, it adds up significantly. With banks expected to pass on the benefits of this repo rate cut, borrowers should evaluate their home loan options carefully. Whether you’re a new buyer or already repaying a loan, this is an opportunity to ease your financial burden and make the most of the lower interest rates.