As the Reserve Bank of India (RBI) cut the repo rate by 25 basis points each during its February and April monetary policy meetings, borrowers remain confused about their next steps. The RBI move marks as the first move in over 5 years. Slashing the EMI or reducing the loan tenure- Which will be your best options to save big? Here are a few insights into both, which will help the customers choose the best.
Benefit Of 50 Bps Rate Cut
RBI Governor Sanjay Malhotra, has announced a 25 basis point cut in the repo rate, reducing it from 6.25% to 6%. The RBI introduced this move as part of the first monetary policy for the financial year 2025–26. Adding the previous 25 basis point cut in the repo rate in February, the total benefit that the borrowers may get is of 50 basis points. However, banks often don’t pass on the full benefit of repo rate cuts to regular customers.
Meanwhile, if they reduce their loan rates by around 50 basis points, it will be a big relief for home loan borrowers who’ve been paying high interest rates for the past few years. 50 basis points. To be precise, financial experts mostly recommend reducing the loan tenure instead of opting for smaller EMIs. As they view long-term benefits in lowering the loan tenure and maintaining the current EMI.
Why Choose a Shorter Tenure Over Reducing Your EMI?
This is because reducing the EMI will ease your monthly payments but it increases the total interest that you have to pay on the loan amount. If you take a home loan of ₹40 lakhs for a tenure of 20 years at an interest rate of 9%, your monthly EMI will be approximately ₹35,989. However, if the interest rate is reduced to 8.5%, the EMI comes down to around ₹34,713. This results in a monthly saving of ₹1,276. Over a year, this amounts to savings of ₹15,312. Extending that over the full 20-year loan period, the total savings would be approximately ₹3,06,240.
Who Should Consider EMI Reduction?
Experts believe this option should be chosen only as a last resort. If you’re facing budget constraints, opting for reduced EMIs is a more practical choice. Some lenders also offer partial reductions in both EMI and loan tenure, providing a more balanced approach.
