How Interest Rate Cuts Affect Your Home Loans

The banks have slashed the home loan interest rates finally. After the RBI governor Raghuram Rajan urged banks to cut interest rates in the first bi-monthly policy review for the financial year 2015-16 on April 7, banks such as SBI, HDFC and ICICI have cut the rates by 20-25 basis points. 

Every rate cut event is anticipated eagerly by homebuyers. If you are a home buyer in India, chances are, you have taken a home loan. Mortgage loans make it easier to buy homes, but the interest payment you make on such loans is substantial, which is why every time the Reserve Bank of India announces a repo rate cut, there are implications for the cost of your home loan.

How do declining interest rates affect home buyers? With rate cuts, home loans become cheaper and so do their EMIs for existing homeowners with floating interest rate* mortgage loans.

Here are the three tables to explain how it works.

Table 1.0

On a home loan of Rs 1 crore from SBI, you'll save Rs 3, 97, 805 over 20 years, and Rs 1, 657 in EMIs. (Table 1.0)

Table 1.1

On a home loan of Rs 20 lakh from HDFC, you'll save Rs 63, 605 over 20 years, and Rs 265 in EMIs. (Table 1.1)

Table 1.2

On a home loan of Rs 50 lakh from ICICI, you'll save Rs 1, 98, 903 over 20 years, and Rs 829 in EMIs. (Table 1.2)

*A floating interest rate mortgage loan does not have a fixed rate of interest over the life of the instrument. When the interest rate falls, your EMI payment/tenure declines too.