How much can people save on ₹50-lakh home loan if RBI cuts repo rate by 50 bps?
The Reserve Bank of India (RBI) recently announced a 25-bps cut in the repo rate for the second time in a row, bringing it down to 6%. This development has sent a wave of excitement among homebuyers, as they can now expect to save a significant amount on their home loans. In this blog post, we will explore how much people can save on a ₹50-lakh home loan if RBI cuts the repo rate by 50 bps.
To put this into perspective, let us consider a ₹50-lakh home loan availed for 20 years at an interest rate of 9% per annum. The EMI (Equated Monthly Installment) for this loan would be ₹44,986. However, with a 50-bps cut in the repo rate, the interest rate would drop to 8.5%, reducing the EMI by ₹1,595 per month.
But what does this mean in terms of the total savings over the entire tenure of the loan? According to a recent report, the reduction in EMI would translate to a relief of ₹3.83 lakh for the borrower. This is a significant amount of money that can be saved over the course of two decades.
So, how can people take advantage of this reduced interest rate and save a significant amount on their home loans? Here are a few tips:
- Avail of a longer repayment tenure: If you have taken a 15-year home loan and are planning to extend it to 20 years, you can take advantage of the lower interest rate and save even more. For example, if you are currently paying ₹50,000 per month, you can reduce your EMI by ₹10,000 per month by extending the repayment tenure to 20 years.
- Prepay your loan partially: If you have a large sum of money lying idle, you can use it to prepay your home loan partially. This will not only reduce your outstanding principal amount but also save you interest payments over the long term.
- Opt for a balance transfer: If you have taken a home loan from a private sector bank and are eligible for a balance transfer, you can transfer your loan to a bank that is offering a lower interest rate. This can help you save thousands of rupees in interest payments over the course of the loan.
- Make extra payments: If you have a stable income and are able to make extra payments towards your home loan, you can reduce your outstanding principal amount and save interest payments over the long term.
In conclusion, a 50-bps cut in the repo rate can result in significant savings for home loan borrowers. By taking advantage of a longer repayment tenure, prepaying your loan partially, opting for a balance transfer, and making extra payments, you can save thousands of rupees in interest payments over the course of your loan.
