Reducing EMI vs Tenure on ₹50 lakh, ₹75 lakh, ₹1 crore home loans: Which offers greater savings?

Home loan interest rates have come down in the wake of three consecutive` repo rate cuts by the Reserve Bank of India (RBI). Since February 2025, the central bank has reduced the repo rate by 100 basis points (bps) to 5.5%.

In response to the RBI's move, most banks and housing finance companies have also reduced the repo-linked (RLLR) interest rates of home loans by up to 100 bps.

Reducing home loan rates is a welcome development for new borrowers as they will be able to book cheaper RLLR home loans, depending on their credit scores. However, it can create a dilemma for existing borrowers- whether to reduce their EMI amount or loan tenure?

Generally, banks reduce the tenure of RLLR home loans while keeping the EMI amount unchanged. However, borrowers can ask the lender to reduce their EMI amounts, instead of reducing the loan term. For this, they will also need to pay a processing fee. But will it help in saving more? Or, is it better to reduce the tenure instead of the EMI amount? Let's understand with a few examples.

Which option will help you save more?

Generally, reducing the tenure will help in saving more during the entire loan term, instead of reducing the monthly EMIs. Let's take the example of three borrowers who have home loans worth ₹50 lakh, ₹75 lakh, and ₹1 crore, respectively, for 20 years. And their interest rate has decreased from 8.5% to 8% after the RBI's recent repo rate cut.

At 8.5% interest rate, the EMI amount will be ₹43,391 for 240 months (20 years), and the total interest payable will be ₹54.1 lakh. In this case,

• If EMI remains the same and tenure is reduced, then the loan will be fully repaid in around 221 months at 8% interest. Also, the total interest payable will be around ₹45.8 lakh, which is a saving of around ₹8.2 lakh.

• However, if the EMI amount is reduced and the loan tenure remains the same, then the total interest payable at an 8% per annum rate in 20 years will be ₹50.5 lakh, which is a saving of around ₹3.7 lakh.

At 8.5% interest rate, the EMI amount will be ₹65,086 for 240 months (20 years), and the total interest payable will be ₹81,20,818. In this case,

• If EMI remains the same and tenure is reduced, then the loan will be fully repaid in around 221 months at 8% interest. Also, the total interest payable will be around ₹68.9 lakh, which is a saving of around ₹12.3 lakh.

• However, if the EMI amount is reduced and the loan tenure remains the same, then the total interest payable at an 8% per annum rate in 20 years will be ₹75.6 lakh, which is a saving of around ₹5.6 lakh.

At 8.5% interest rate, the EMI amount will be ₹86,782 for 240 months (20 years), and the total interest payable will be ₹1,08,27,257. In this case,

• If EMI remains the same and tenure is reduced, then the loan will be fully repaid in around 221 months at 8% interest. Also, the total interest payable will be around ₹91.8 lakh, which is a saving of around ₹16.4 lakh.

• However, if the EMI amount is reduced and the loan tenure remains the same, then the total interest payable at an 8% per annum rate in 20 years will be approx ₹1 crore, which is a saving of around ₹8 lakh.

We have summarised the savings in both scenarios in the above examples in the following table.

Now that you know reducing the tenure will help you save more during the entire term of the loan, a natural response will be to go for this option. However, before making any move, you should take into consideration the following points:

First, in the above examples, we have taken a fixed interest rate throughout the tenure of the loan to help you understand. But in real life, it may not be the same, especially with RLLR loans. The interest rate for RLLR home loans will undergo several ups and downs during the tenure of the loan. Depending on the overall economic situation, it may increase or decrease sharply in the future.

Second, if you want to save more, then you should try to repay the home loan as soon as possible. If you can't repay the home loan in one go, you may try making small prepayments on top of your regular EMIs, which will not only help save on interest payments but also close the loan really fast.

Third, there are no straightforward answers to the above queries. However, borrowers can make the best decision by considering all possibilities, including their financial situation. For instance, if you are facing a monthly cash crunch, reducing the EMI amount will be a better option. If not, you may go for reducing the tenure.