How Much Interest You Will Save on ₹50 Lakh Home Loan After a 50 bps Repo Rate Cut by RBI?

In a significant move to ease borrowing costs, the Reserve Bank of India (RBI) slashed the repo rate by 50 basis points (bps) during its Monetary Policy Committee (MPC) meeting held on June 6. This follows two earlier rate cuts of 25 bps each in February and April, bringing the cumulative reduction in the repo rate to 100 bps (or 1%) in 2025 so far.

Since most floating-rate home loans are directly linked to the repo rate, this series of cuts translates into lower interest rates for a large number of home loan borrowers. When the repo rate is reduced, lenders typically pass on the benefit by cutting home loan interest rates, providing a much-needed financial breather.

Options for Borrowers After an Interest Rate Cut

Whenever there's a reduction in interest rates, borrowers are typically given two options by their lenders:

• Reduce the EMI while keeping the loan tenure unchanged, or
• Keep the EMI the same and reduce the loan tenure.

While both approaches result in savings on total interest payments, the extent of savings varies.

Option 1: Lower EMI, Tenure Unchanged

If you opt for a lower EMI while maintaining the original tenure, your monthly outflow decreases, and you still save a substantial amount on interest over time.

For example:

• On a ₹30 lakh loan, with the interest rate falling from 9.5% to 8.5%, your EMI drops by ₹1,929 per month, leading to a total interest saving of ₹4.63 lakh.
• A ₹50 lakh loan sees a monthly EMI reduction of ₹3,215, with interest savings of ₹7.71 lakh.
• A ₹1 crore loan brings down your EMI by ₹6,431, translating into savings of ₹15.43 lakh in interest payments.

Option 2: Same EMI, Shorter Tenure

Alternatively, if you continue paying the same EMI despite the rate cut, your loan tenure shortens significantly, resulting in even higher interest savings.

• In this scenario, a ₹50 lakh loan would save you approximately ₹17.65 lakh in interest, and the repayment period reduced by about 3.16 years.
• For a ₹1 crore loan, the total interest saved jumps to ₹35.30 lakh.

Conclusion

Your actual savings will depend on your current interest rate, loan balance, and remaining tenure. Regardless of the option chosen, the recent rate cuts present an excellent opportunity for borrowers to bring down their total cost of borrowing.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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