The Reserve Bank has surprised everyone by cutting the repo rate by 50 basis points. This is good news for lakhs of home loan customers, as their monthly EMI will now become lower. People who have loans linked to the external benchmark lending rate may see a drop in interest rates in the upcoming reset cycle.
How much will the EMI go down? How much total interest will you save? Let’s understand this with an example.
Suppose you have taken a home loan of ₹50 lakh for 20 years at an interest rate of 8.5%. Right now, your monthly EMI is ₹43,391. If your bank reduces the interest rate to 8%, then what will your new EMI be in that case?
Home Loan EMI Will Reduce After 50 bps Rate Cut
The Reserve Bank has surprised everyone by cutting the repo rate by 50 basis points. This is good news for home loan customers, as their monthly EMI will now reduce. People with loans linked to the external benchmark lending rate may see a drop in interest rates during the next reset cycle.
Let’s understand how much the EMI and total interest will reduce with two examples.
Example 1: Home Loan of ₹50 Lakh
- Loan amount: ₹50 lakh
- Interest rate (before cut): 8.5%
- Loan tenure: 20 years
- Monthly EMI: ₹43,391
- Total interest: ₹54,13,879
- After 50 bps repo rate cut (new interest rate 8%)
- Monthly EMI: ₹41,822
- Total interest: ₹50,37,281
- Reduction in EMI: ₹1,569
- Reduction in interest: ₹3,76,598
Example 2: Home Loan of ₹25 Lakh
- Loan amount: ₹25 lakh
- Interest rate (before cut): 8.5%
- Loan tenure: 20 years
- Monthly EMI: ₹21,696
- Total interest: ₹27,06,939
- After 50 bps repo rate cut (new interest rate 8%)
- Monthly EMI: ₹20,911
- Total interest: ₹25,18,640
- Reduction in EMI: ₹785
- Reduction in interest: ₹1,88,299
Note:
Many banks may not reduce the EMI. Instead, they reduce the loan tenure. This helps save more on total interest. Your EMI stays the same, but your loan ends earlier. If you want, you can also choose to reduce your EMI instead.
Impact on Affordable and Mid-Priced Homes
According to Shishir Baijal, Chairman and MD of Knight Frank India, the 50 bps cut by the RBI shows a strong and active step to support low and mid-priced housing. In recent years, the housing market was mostly growing in the premium segment, while the lower price segments were slowing down.
With a total policy rate cut of 100 basis points, home buyers in the affordable segment will benefit more. As home loan rates fall, buying homes in the low and mid-range will become easier and more affordable.