how much will 1% RBI repo rate cut reduce your EMI or tenure? Check calculations
Home loan borrowers have a big reason to cheer! The Reserve Bank of India (RBI) has cut the repo rate by a huge 50 basis points in the Monetary Policy Committee (MPC) meeting. With this, the cumulative repo rate cut since February this year stands at 100 basis points or 1%!
Repo rate is the rate at which the RBI lends to the banks.
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If this rate comes down, banks are able to in turn lend to borrowers at lower interest rates. To put it simply, today's jumbo 50 bps rate cut would in the coming months mean lower EMIs for home loan borrowers.
While the impact of the 1% repo rate cut will take time to reflect in home loan borrowers' EMIs, the transmission is expected to be faster this time round.
What does 1% repo rate cut mean for your loan EMIs?
Adhil Shetty, CEO, BankBazaar.com notes, 'Today's 50 basis points rate cut is likely to push home loan rates closer to the psychologically important sub-8% level.
The lowest rates in the market are already at 7.85%, largely available to prime borrowers with credit scores above 750, and often in refinance or balance transfer cases. A further rate cut could see sub-8% rates becoming more widespread—something we haven't seen since early 2022.
'
Cumulative Impact Of 3 Rate Cuts; Original rate of interest @8.5%; Revised rate of interest 7.5%
1 lakh
25 lakh
50 lakh
100 lakh
Original EMI
₹ 867.82
₹ 21,695.58
₹ 43,391.16
₹ 86,782.32
Original Interest
₹ 108,277.58
₹ 2,706,939.40
₹ 5,413,878.80
₹ 10,827,757.60
Original Tenor
240 months
240 months
240 months
240 months
Interest With Fixed EMI
₹ 77,399.55
₹ 1,934,988.83
₹ 3,869,977.65
₹ 7,739,955.31
Interest Saved
₹ 30,878.02
₹ 771,950.57
₹ 1,543,901.15
₹ 3,087,802.29
Months Reduced
36 months
36 months
36 months
36 months
Interest With Variable EMI
₹ 93,342.37
₹ 2,333,559.16
₹ 4,667,118.32
₹ 9,334,236.65
Interest Saved
₹ 14,935.21
₹ 373,380.24
₹ 746,760.48
₹ 1,493,520.96
EMI Reduced
₹ 62.23
₹ 1,555.75
₹ 3,111.50
₹ 6,223.00
Numbers approximate. Actual numbers may depend on lender's unique policies. Source: Bankbazaar.com
For a Rs 50 lakh home loan with a 20 years tenure, you will save Rs 3,111.50 in monthly EMIs in case of interest rate with variable EMIs. In case of fixed EMIs, the loan tenure will come down by 36 months or 3 years.
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Rate cut transmission crucial
Santosh Agarwal, CEO, Paisabazaar says, 'The 50-basis-point rep rate cut should lead to reduction in home loan interest rates, both for new and existing home loan borrowers. However, the quantum and time of the rate cut transmission would depend on factors like type of interest rate benchmarks used by the lenders, their rate reset related policies regarding, rate reset dates set for the borrowers, etc.'
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'The transmission would be quickest and absolute in case of existing home loans linked to the repo rate. The exact date of rate cut transmission to the existing borrowers would depend on the rate reset dates set by their respective lenders. Till then, they will continue to repay their loans as per their existing interest rates. As the cost of funds of the lenders play a major role in determining their internal benchmark rates, there would be a longer lag in the transmission of repo rate cuts to home loans linked to MCLR- or other internal benchmarks,' he adds.
The transmission of rate cuts remains uneven, says Adhil Shetty. 'Borrowers with repo-linked home loans will see the fastest and fullest pass-through. But loans taken pre-2019, especially with public sector banks, continue to be linked to older benchmarks like the MCLR or even the Base Rate. These borrowers will not benefit automatically from today's cut,' he said.
'If you're paying 50 basis points or more above the lowest available rates, and especially if you're in the early years of your tenure, it's worth exploring a refinance to a repo-linked loan.
This can help bring down your interest cost significantly over the life of the loan,' he advocates.
Atul Monga, CEO & Co-Founder, BASIC Home Loan says, 'Public sector banks, which usually act faster in passing on such cuts, are expected to roll out attractive loan offerings. This will create significant savings for borrowers. That said, I would advise borrowers to review and compare loan options carefully to make the most of the favorable rate environment.'
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