How much impact 25 bps rate cut makes to your home loan

The difference in equated monthly instalments is not much when rates fall by 25bps (ANI Photo)Premium
The difference in equated monthly instalments is not much when rates fall by 25bps (ANI Photo)
 2 min read . Updated: 01 May 2021, 06:37 PM IST Staff Writer

State Bank of India has reduced its home loan rates. From 1 May, the lowest rate from the bank is 6.7%. Earlier, it was 6.95%

State Bank of India has reduced its home loan rates. From 1 May, the lowest rate from the bank is 6.7%. Earlier, it was 6.95%.

For borrowers, the difference of 25 basis points (bps) to the overall loan is significant in the scenario when the loan tenure is longer. That's because the total interest outgo for long-tenured loans (15-20 years or more) is much higher. For shorter tenures, 10 years or lower, it makes no considerable difference.

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One basis point is one-hundredth of a percentage point.

The difference in equated monthly instalments is not much when rates fall by 25bps.

Here's how a 25bps cut will impact if you are seeking a ₹30 lakh loan. The same will hold for different loan amounts.

Scenario 1: Loan tenure is 20 years.

At 6.95%, the total interest outgo comes to ₹25,60,563 and equated monthly instalment (EMI) is ₹23,169.

At 6.7%, the total interest outgo is ₹24,53,238, and the EMI is ₹22,722.

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The difference in the interest outgo = ₹1,07,325

The difference in EMI = ₹447

Scenario 2: Loan tenure is 15 years.

At 6.95%, the total interest outgo comes to ₹18,38,590 and equated monthly instalment (EMI) is ₹26,881.

At 6.7%, the total interest outgo is ₹17,63,554, and the EMI is ₹26,464.

The difference in the interest outgo = ₹75,036

The difference in EMI = ₹417

Scenario 3: Loan tenure is 10 years.

At 6.95%, the total interest outgo comes to ₹11,70,634 and equated monthly instalment (EMI) is ₹34,755.

At 6.7%, the total interest outgo is ₹11,24,456, and the EMI is ₹34,370.

The difference in the interest outgo = ₹46,178

The difference in EMI = ₹385

If you are looking at shifting your home loan, use these calculations to reference the savings you will make on balance transfer.

The point to note is that your remaining loan tenure should be over 10 years to see any significant impact in savings. The higher, the better.

(Do you have personal finance queries? Send them to mintmoney@livemint.com and get them answered by industry experts)

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