RBI cut the interest rates by another 0.25% last week to decrease the cost of capital and boost growth. The total rate cut after the new RBI governor has taken over the reins is 0.5%.

Home loan borrowers with floating-rate home loans will see that their EMIs will fall down in coming days as the banks pass on the benefit of rate cuts to customers.

This creates a perfect moment to optimize your repayments.

Choose to reduce your loan tenure instead of the EMI. This approach slashes interest costs and accelerates your debt-free journey.

Consider a ₹2 crore home loan at an 8.5% interest rate for 20 years. The EMI is ~₹1.73 lakh, with total interest of ~₹2.16 crore. With revised interest rates (8%), here are your options:

Reduce EMI: The EMI falls to ~₹1.67 lakh, but the 20-year tenure stays. The EMI is reduced by ₹6,277. Total interest is ~₹2.01 crore. The savings amount to approximately 15.1 lacs.

Reduce Tenure: Keep the EMI the same at ~₹1.73 lakhs and reduce the tenure by 20 months. Total interest reduces to ~₹1.82 crore. This results in savings of approximately 34.7 lakhs.

By opting for reduced tenure, you save ~₹35 lakh in interest and clear the loan 20 months earlier.

When is lowering EMI okay?
Only if:

You’re facing cash flow issues.

You need to save money for high-priority goals (like child education or retirement) and will redirect the reduced EMI to investments. E.g., the same Rs 6277 invested in an equity MF would become Rs 57.7 lacs in 20 years at a 12% rate of return assumption.

The default option from most banks is to reduce your EMI. Choose wisely!