Unlocking savings: 3 smart strategies to lower your home loan EMI after RBI's rate pause
Home loan EMI tips during RBI's rate pause: Extra principal payments can help reduce your interest burden, even if rate cuts aren't passed on, say experts
In today’s monetary policy meeting, the Reserve Bank of India (RBI) kept the repo rate unchanged at 5.5%, following a cumulative 1% reduction over the past three policy reviews. The decision reflects the RBI’s effort to balance domestic stability against a weakening global economic backdrop. Personal finance experts advise borrowers still repaying loans at significantly higher interest rates to consider switching to repo-linked lending products to reduce long-term borrowing costs.
“The RBI is exercising caution, preparing to act if external shocks, especially tariffs, begin to weigh more heavily on recovery. With no signal of imminent Fed cuts, the central bank is balancing internal stability against a weakening global backdrop,” says Adhil Shetty, CEO, BankBazaar.com
Home loan rates have already fallen below 8% for prime borrowers, particularly in refinance and balance transfer cases. Borrowers still servicing loans at significantly higher rates should consider switching to repo-linked products to reduce long-term interest costs.
EMI reduction strategies: Hacks for home loan borrowers
There are several simple but effective ways one can reduce interest burden on their loans if the lender is not reducing the same even after RBI has cut repo rate considerably.
- Ask your lender to match lower market rates
The RBI has reduced the repo rate by 100 basis points this year. If your home loan interest rate hasn't decreased in line with this, you can approach your lender to request a better rate.
“Most banks allow existing borrowers to opt for a lower interest rate by paying a nominal conversion or processing fee. This can help reduce your EMI without changing lenders,” says Raoul Kapoor, co-CEO, Andromeda Sales and Distribution.
2.Small extra payments can cut years off your loan tenure
Home loan borrowers can work with the lender to prepare the loan using annual bonus payout or other windfall gains from time to time as it is one of the most powerful ways to reduce interest costs.
Even small additional payments toward the principal can result in substantial savings over time, says Abhishek Kumar, a Securities and Exchange Board of India (Sebi)-registered investment advisor (RIA), and founder and chief investment advisor of SahajMoney, a financial planning firm.
You can voluntarily ask the lender to increase your EMI if you have a good credit score and history and your financial history supports this. “If one can afford it without impacting their essential spend then they can increase EMI annually by 5-10% as their income grows and can reduce loan tenure significantly,” says Kumar.
A 5% increase in your EMI for the same Rs. 40 lakh loan would cost you an additional ~Rs. 1800, taking your EMI to Rs. 37,788. “However, this small hike can bring down your outstanding tenure to less than 15 years and mean interest savings of Rs.18.82 lakhs over the next 15 years,” says Shetty.
3.Refinancing to a lower-rate lender can reduce EMIs and total interest paid
Finally, if all this is not possible and your lender is not relenting then explore the option to transfer loan to another lender offering much lower interest rate if it helps in reducing overall interest burden during loan tenure after including associated costs, suggests Kumar.
Also Read: Homebuyers’ guide: Why owning a home involves more than just paying EMIs
A lower interest rate can save you lakhs on your home loan. In the last six months, home loan interest rates have fallen by 1%. This means that a Rs. 40 lakh home loan for 20 years at 9% now costs 8%.
“A refinance will help you get an additional 25 basis points on that reduction, getting your interest down to 7.75%. That’s a straight savings of ₹3,151 per month on your EMI, or ₹7.56 lakh in interest costs over the duration of the loan” says Shetty.
As a borrower, each time the interest rates go up or down, the lenders hold your EMI steady and adjust the tenure of your loan. This drives the tenure up when rates go up, but is very beneficial when the rates fall.
“If your interest rates fall by 1.25% when you refinance and you continue to pay the same higher EMI, then you reduce your tenure by 43 months, or 3 years and 7 months, and your interest savings over 20 years almost double to Rs. 15.65 lakh,” adds Shetty.
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics
