One decision of RBI & Home Loan EMI will be reduced by Rs 1 lakh! Know how?

RBI Monetary Policy: The Reserve Bank's monetary policy is to be announced on February 7. A cut in the repo rate may be announced in the policy. If experts are to be believed, this time RBI can cut the repo rate by up to 25 basis points (0.25%). You can also get a big benefit from this decision of RBI. When the Reserve Bank of India (RBI) cuts the repo rate, it has a direct impact on your loan EMI.

If RBI reduces the repo rate by 0.25% (25 basis points), how much difference will it make in your EMI on a home loan of Rs 30 lakh? Also, if you want to finish your EMI early, what steps can you take for this? Let's understand this in simple language and through calculations.

The repo rate is the interest rate at which RBI gives loans to banks. When this rate decreases, banks also make loans cheaper, which affects your EMI.

Understand with an example

Home loan amount: ₹30 lakh

Current interest rate: 8.50%

Loan tenure: 20 years

Current EMI: ₹25,846

If RBI cuts the repo rate by 0.25% and banks reduce the interest rate to 8.25%, then your EMI will change like this. 

New EMI: ₹25,386

Difference: ₹460/month

This means you will save ₹460 every month. If we consider the changed interest rate as the base, then this saving can be up to ₹1,10,400 in 20 years.

Easy ways to end EMI

Make prepayment every year: If you have any bonus, tax refund, or extra savings, then apply it to your loan. This will reduce your loan tenure and interest amount.

Increase EMI: Increase EMI slightly when your income increases. This is the easiest way to repay the loan quickly.

Compare interest rates: If other banks are offering loans at a lower interest rate, you can transfer your loan. But keep in mind the processing fees and other expenses.

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Make a smart budget: Limit unnecessary expenses and invest a large part of the savings in loan prepayment. This will reduce the tenure of your loan and there will be huge savings on interest.

Benefits of repaying home loan early

1.Saving on interest: The sooner you repay the loan, the more the interest will be reduced. Keeping the loan for a long time increases the interest burden.

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2.Financial security: A debt-free life increases the feeling of financial security.

3.Investment opportunity: After repaying the loan, you can invest your savings in other profitable investments.

Waiting for February 7

Now we will wait to see whether RBI cuts the repo rate or not. This will be decided by the outcome of the monetary policy on February 7. If there is a rate cut, then there can be a direct impact on the EMI of your home loan.