The Reserve Bank of India recently cut the repo rate by 25 basis points, bringing it down to 6 per cent. This decrease benefits home loan borrowers, but the savings vary depending on whether your loan is tied to the External Benchmark Lending Rate (EBLR) or Marginal Cost of Funds-based Lending Rate (MCLR). A lower policy rate leads to a decline in interest rates on bank loans, which makes borrowing easier for consumers as well as businesses, resulting in higher consumption and investments in the economy, leading to higher growth.

How repo rate cut affect home loan borrowers?

EBLR: If your loan is tied to the EBLR, your interest rate will decrease, leading to lower EMIs or a shorter loan tenure.

MCLR: For loans tied to the MCLR, the interest rate will also decrease, but the extent of the benefit may vary depending on your lender.

What does this mean for your home loan?

Lower EMIs: With a reduced interest rate, your monthly EMIs may decrease, making it easier to manage your finances.

Shorter loan tenure: You can choose to keep your EMI amount the same and shorten your loan tenure, saving on interest payments over the life of the loan.

Loan type: The impact of the repo rate cut differs for fixed-rate and floating-rate loans. Only floating-rate loans will see a change in interest rates.

How will the latest repo rate cut impact your home loan EMI?

Home loan interest rates may decrease further after the RBI cut the repo rate by 25 basis points to 6 per cent. If money lenders respond positively to the RBI’s recent decision by reducing their rates by around 50 basis points, following the RBI’s 25 basis point cut, it will offer major relief to home loan borrowers. Let’s find out will the MPC’s action eases your home loan EMI burden if your monthly EMI is Rs 30k, Rs 40k, or Rs 50k.

Post-RBI Rate Cut Home Loan Calculation on monthly EMI of Rs 30k

If a borrower has a Rs 36 lakh home loan with a tenure of 30 years and an interest rate of 9.5 per cent, the estimated EMI is Rs 30,271. With a 50 basis point reduction passed on by banks, the new EMI would be around Rs 28,966, resulting in savings of Rs 1,305 every month and about Rs 15,660 annually. 

Post-RBI Rate Cut Home Loan Calculation on monthly EMI of Rs 40k

If a borrower has a Rs 43 lakh home loan with a tenure of 20 years and an interest rate of 9.5 per cent, the estimated EMI is Rs 40,082. With a 50 basis point reduction passed on by banks, the new EMI would be around Rs 38,688, resulting in savings of Rs 1,394 every month and about Rs 16,728 annually. 

Post-RBI Rate Cut Home Loan Calculation on monthly EMI of Rs 50k

If a borrower has a Rs 60 lakh home loan with a tenure of 30 years and an interest rate of 9.5 per cent, the estimated EMI is Rs 50,451. With a 50 basis point reduction passed on by banks, the new EMI would be around Rs 48,277, resulting in savings of Rs 2,174 every month and about Rs 26,088 annually. 

DISCLAIMER: For information only, consult an advisor before investing