How Repo Rate Cut Can Reduce Your Home Loan Burden?

For the first time in five years, the RBI has cut the repo rate by 0.25%!

May sound small, but if you have a floating interest rate on your home loan, this is big news. Your EMIs could go down, and you might save a good chunk of money!

*(A floating interest rate changes with market conditions, meaning when the repo rate drops, your loan interest rate can also decrease.)

But how does this rate cut actually impact your loan? And how much can you really save?

Let’s break it down!

What are my options?

If you already have a home loan or are planning to take one, you have two options:

1. Reduce your EMI & keep the loan tenure the same
2. Reduce your loan tenure & keep the EMI the same

So, which option saves you more money? 

Let’s understand with an Example

Rahul took a ₹50 lakh loan for 20 years in 2024 at an 8.5% interest rate. His monthly EMI was ₹43,391 before the rate cut. Now, after the RBI’s rate cut, his interest rate drops to 8.25% 

Let’s see what happens in both scenarios:

Scenario 1

If Rahul Chooses to Reduce EMI:

Note:  We are assuming that the floating interest rate changes after one year, though banks may revise it monthly or quarterly.

As you can see from the numbers above, If Rahul chooses to reduce his EMI, he will save around ₹2 lakh in total interest.

Scenario 2: 

Rahul Keeps EMI the Same & Reduces Loan Tenure

If he keeps his EMI the same and shortens his loan tenure, he will save nearly ₹4 lakh, almost double the savings as compared to reducing EMI.

So, What’s the Better Choice?

It depends on your priorities:

✔ If you reduce your EMI, your monthly payments go down, leaving you with more cash to spend or save, which helps you in the short term.

✔ If you keep your EMI the same and reduce your loan tenure, you clear the loan faster and save a lot more on interest.

At the end of the day the choice is yours, lowering EMI provides immediate relief, while reducing tenure brings long-term savings.

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