If you are planning to buy a house or have already taken home loans, then a good news has come for you. The Reserve Bank of India has recently reduced the repo rate by 0.50 percent. This is the third time of this year, which has fallen by 1 percent. Home loan holders will get direct benefit of this decision, because the decrease in interest rates can reduce your monthly installment, ie EMI. This will not only make it cheaper to take a loan, but will also make the burden of home loan feel light.
The low interest rates will have an impact on those who are thinking of buying new properties or repaying loans in advance. This decrease in interest rates can also reduce the total cost of the loan, making it possible to save millions of rupees in a long time. But for this it is necessary to take some smart steps and loan management will have to adopt strategically.
Suppose you have taken a home loan for 20 years and the first interest rate was 9.5 percent, which has now come down to 8.5 percent. This one percent reduction will make a significant difference in your monthly installment on different loan amounts.
If you have taken a loan of Rs 30 lakh, then your EMI will be reduced by about Rs 1,929 every month and the total interest will save about 4.63 lakh rupees.
This savings on a loan of Rs 50 lakh will increase to Rs 3,215 per month, which will provide relief of Rs 7.71 lakh in total interest.
EMI of every month on a loan of Rs 75 lakh will reduce by Rs 4,823 and the total interest can save Rs 11.58 lakh.
EMI of about Rs 6,431 will be cut every month on a loan of Rs 1 crore, due to which the total savings can be around Rs 15.43 lakh.
The benefit of reduction in repo rate will be more only if you take some important steps. You can control the cost and duration of your loan by adopting the suggestions given below instead of waiting for only interest rate reduction.
Continue the same old EMI instead of reducing EMI: Banks can give the option to reduce your EMI after the interest rate decreases, but if you keep filling the EMI as before, then your loan can be repaid quickly. This will reduce the burden of interest and also reduce the loan duration.
Reduce the loan duration: If your financial condition is stable and the monthly income is increased, then try to reduce the loan duration from 20 years to 15 or 10 years. This will increase the EMI slightly, but there will be heavy savings in interest.
Pre-pay from time to time: Use bonus, savings or any additional income every year for pre-payment of home loan. This will reduce the principal rapidly and reduce the total interest. Most banks have no longer put any additional fee on pre-payment, making this process even more beneficial.
If the above example does not match your loan amount, you can also calculate the saving EMI and interest yourself. For this, use EMI calculator available on any bank website. It can easily see EMI’s difference and total savings by filling the old and new interest rate, loan amount and duration.
Savings on home loans are not only due to decrease in interest rate, but also affect your financial planning. If you keep EMI stable from the beginning, pre-payment from time to time and try to reduce the loan duration, then this debt can become a sensible investment, not a burden.
