New Delhi. Reserve Bank of India Governor Shaktikanta Das gave another big gift this year on Friday, December 5, by making a big cut in loan interest rates. When the Governor reduced the repo rate by 0.25 percent, a smile blossomed on the face of every person taking loan from the bank. They felt that now their dreams of buying a house and buying a vehicle were going to become even cheaper. How much impact this decision of the Governor will have on a person can be clearly understood only by a small calculation.
In fact, as soon as the repo rate i.e. policy interest rates of the Reserve Bank is cut, all the banks will have to reduce the interest rates of their retail loans. These retail loans include all types of small loans including home loan, auto loan and personal loan. The Reserve Bank has cut the repo rate for the third time this year and now the loan interest rates have come down to 1.25 percent. Obviously, this is no less than a gift for those who buy houses and vehicles. This time, how much money will a person taking a home loan of Rs 50 lakh save if the interest rates are reduced by 0.25 percent?
What is the current EMI on a loan of Rs 50 lakh?
Suppose someone has taken a home loan of Rs 50 lakh for 20 years to buy a house and is paying 8.25 percent annual interest on it. The current EMI on this loan will be Rs 42,603 per month. This means that you will have to pay Rs 52,24,788 as interest for the entire tenure and your total liability will be Rs 1,02,24,788. This means that you will have to pay more interest than the loan taken.
How much will be the new EMI?
Now that your home loan interest rates have reduced by 0.25 percent, you will have to pay 8 percent annual interest on a loan of Rs 50 lakh. In such a situation, your EMI every month for a tenure of 20 years will be Rs 41,822. Thus, you will have to pay only Rs 50,37,281 as interest for the entire tenure, which means your total liability will be Rs 1,00,37,281. Now one thing is certain that you will have to pay only Rs 37 thousand more in interest than the loan you had taken.
How much money will be saved
The simple mathematics is that due to reduction in interest, your EMI will also definitely reduce. If we look at the above figure, if the loan of Rs 50 lakh is for 20 years, then by reducing the interest rates by just 0.25 percent, the EMI per month will be reduced by Rs 781. This means that every year you will save Rs 9,372 as EMI, while in the entire tenure of 20 years you will save Rs 1,87,440.
