Rs 7.71 lakh savings on Rs 50 lakh home loan: Check how much you will save after RBI’s 50 bps repo rate cut

RBI has delivered a big bonanza for home loan borrowers by reducing the repo rate by 50 bps in its MPC meeting on June 06. The central bank had earlier reduced the repo rate by 25 bps each in February and April. As a result of these three cuts there has been an overall drop of 100 bps in the repo rate this year.

A majority of home loan borrowers take floating rate home loans out of which the interest rates of most of these home loans are linked to repo rate. So, any reduction in repo rate means corresponding reductions in the home loan interest rate as well.

Whenever, there is a reduction in home loan interest the lender gives two options to the borrowers either to reduce the EMI by keeping the tenure unchanged or keep the same EMI by going for reduction of the tenure. A borrower will save on interest in both ways, but the quantum of saving will differ.

If you go for EMI reduction after interest rate reduction, it doesn't only lower your monthly outgo by reducing your EMI, it could also slash your total interest by several lakhs. However, your actual savings depend on whether you reduce your EMI or keep it constant and shorten the loan tenure. As the lenders will now start lowering your home loan interest rate, most borrower would like to use home loan EMI calculators to know how much savings they can do. The amount of saving on account interest payment will depend upon your existing interest rate on home loan.

Also read | Big savings for home loan borrowers as EMIs to fall significantly after RBI cuts repo rate by 50 bps

ET Wealth brings you an easy home loan EMI calculator which gives you a detailed look at how much you can save depending on your loan amount and repayment strategy.

Scenario 1A: Interest rate falls from 9.5% to 8.5%, with tenure unchanged, EMI reduced

If you choose to reduce your EMI after a 1% interest rate cut, the savings are consistent across loan amounts. For instance, on a Rs 30 lakh loan, your monthly EMI comes down by Rs 1,929 and you save Rs 4.63 lakh in total interest. For a Rs 50 lakh loan, EMI is reduced by Rs 3,215 with an interest saving of Rs 7.71 lakh. A Rs 1 crore loan leads to an EMI drop of Rs 6,431 and interest saving of Rs 15.43 lakh.

Interest savings if your home loan interest falls from 9.5% to 8.5% with 20 year tenure

Home loan outstanding	Saving on monthly EMI (in Rs)	Savings on total interest payment (in Rs)
Rs 30 lakh	1,929	Rs 4.63 lakh
Rs 50 lakh	3,215	Rs 7.71 lakh
Rs 75 lakh	4,823	Rs 11.58 lakh
Rs 1 crore	6,431	Rs 15.43 lakh

Scenario 1B: Interest drops from 9.5% to 8.5%, with EMI unchanged, tenure reduced

Instead, if you continue paying the same EMI after the rate drop, your loan tenure reduces by 3.16 years. This option saves you much more in total interest. On a Rs 50 lakh loan, you save Rs 17.65 lakh in interest; for a Rs 1 crore loan, the savings go up to Rs 35.30 lakh.

Interest savings if your home loan interest falls from 9.5% to 8.5% with 20 year tenure if EMI unchanged

Home loan outstanding	Saving on Tenure (years)	Savings on total interest payment (in Rs)
Rs 30 lakh	3.16	Rs 10.59 lakh
Rs 50 lakh	3.16	Rs 17.64 lakh
Rs 75 lakh	3.16	Rs 26. 47 lakh
Rs 1 crore	3.16	Rs 35.29 lakh

Scenario 2A: Interest drops from 9% to 8% with reduced EMI and tenure is unchanged

If your loan rate falls from 9% to 8% and you lower your EMI, a Rs 30 lakh loan sees a monthly reduction of Rs 1,899 and a total interest saving of Rs 4.56 lakh. The benefit increases with loan amount as a Rs 1 crore loan saves you Rs 6,329 monthly and Rs 15.19 lakh over time.

Interest savings if your home loan interest falls from 9% to 8% with 20 year tenure

Home loan outstanding	Saving on monthly EMI (in Rs)	Savings on total interest payment (in Rs)
Rs 30 lakh	1,899	Rs 4.56 lakh
Rs 50 lakh	3,164	Rs 7.59 lakh
Rs 75 lakh	4,746	Rs 11.39 lakh
Rs 1 crore	6,329	Rs 15.18 lakh

Scenario 2B: Interest drops from 9% to 8%, EMI unchanged, tenure reduced

Holding your EMI steady helps repay the loan 3.06 years earlier, with even greater interest savings. For example, a Rs 75 lakh loan results in savings of Rs 33.03 lakh, while a Rs 1 crore loan saves Rs 24.77 lakh in interest.

Interest savings if your home loan interest falls from 9% to 8% with 20 year tenure if EMI unchanged

Home loan outstanding	Saving on Tenure (years)	Savings on total interest payment (in Rs)
Rs 30 lakh	3.06	Rs 9.91 lakh
Rs 50 lakh	3.06	Rs 16.51 lakh
Rs 75 lakh	3.06	Rs 24.76 lakh
Rs 1 crore	3.06	Rs 33.02 lakh

Scenario 3A: Interest drops from 8.5% to 7.5% with reduced EMI and tenure is unchanged

When rates drop from 8.5% to 7.5% and you reduce your EMI, a Rs 50 lakh loan will cut your monthly outgo by Rs 3,112, with a total interest saving of Rs 7.46 lakh. A Rs 1 crore loan saves you Rs 6,223 in EMI and Rs 14.93 lakh in interest.

Interest savings if your home loan interest falls from 8.5% to 7.5% with 20 year tenure (unchanged)

Home loan outstanding	Saving on monthly EMI (in Rs)	Savings on total interest payment (in Rs)
Rs 30 lakh	1,867	Rs 4.48 lakh
Rs 50 lakh	3,112	Rs 7.46 lakh
Rs 75 lakh	4,667	Rs 11.20 lakh
Rs 1 crore	6,223	Rs 14.93 lakh

Scenario 3B: Interest drops from 8.5% to 7.5%, EMI unchanged, tenure reduced

If you retain your EMI amount, your loan tenure shortens by 2.97 years. This allows you to save Rs 9.26 lakh on a Rs 30 lakh loan, Rs 23.15 lakh on a Rs 75 lakh loan, and Rs 30.88 lakh on a Rs 1 crore loan.

Interest savings if your home loan interest falls from 8.5% to 7.5% with 20 year tenure if EMI unchanged

Home loan outstanding	Saving on Tenure (years)	Savings on total interest payment (in Rs)
Rs 30 lakh	2.96	Rs 9.26 lakh
Rs 50 lakh	2.96	Rs 15.43 lakh
Rs 75 lakh	2.96	Rs 23.16 lakh
Rs 1 crore	2.96	Rs 30.88 lakh

Ultimately, the choice between reducing your EMI or loan tenure depends on your financial priorities.