Home loan calculator: How much money will new borrowers save with a 0.25% interest rate cut?

Housing loan providers have started passing on the benefit of the recent repo rate cut by the Reserve Bank of India (RBI) to borrowers.

Savings for new borrowers

For new home loan borrowers, the lower rates will reduce the total interest outgo during the tenure of the loan. However, they need to keep in mind that the home loan interest rate offered by banks can vary from person to person, depending on a borrower's CIBIL score.

Total savings due to the interest rate cut will also depend on multiple factors including the loan tenure, loan amount, and the interest rate offered by the lender.

Our calculation assuming a reduction of interest rate from 8.75% to 8.5% shows the total savings due to lower interest rate rises with the rising loan amount. For instance, savings for a 20-year loan of ₹20 lakh is ₹76,260, while for ₹50 lakh, the total savings is ₹1.9 lakh.

To illustrate further, the total amount payable on a home loan of ₹1 crore for 20 years at 8.75% is ₹2,12,09,057. However, if the interest rate reduces by 0.25% to 8.5%, the total amount payable becomes ₹2,08,27,757, resulting in a saving of around ₹3.81 lakh in 20 years.

The following table shows total savings in case of different loan amounts:

Options for existing borrowers

• Reduce the EMI amount while keeping the home loan tenure unchanged, or

• Reduce the loan tenure while keeping the EMI amount unchanged.

Banks are also required to offer an option to switch to a fixed interest rate for the remaining period of the loan. Borrowers also get the option to prepay the loan fully or partially at any point during the remaining tenure of the loan.