Cut home loan costs: Retain EMI, shorten tenure, consider prepaying
Published by Business Standard
Abhishek Kumar's role: Quoted
Abhishek Kumar said public-sector banks had recently passed on rate cuts faster than private banks, noted that lower rates raise loan eligibility, and suggested keeping the EMI unchanged and shortening the tenure to save more on interest.
What Abhishek Kumar said
Do new home loan borrowers get the full benefit of a repo rate cut right away?
Not always immediately. Some banks take time to adjust the pricing of their new loans, because they set those rates with an eye on their projected net interest margin. On the positive side, lower rates do more than reduce the EMI for a new borrower: they also increase the loan amount you are eligible for.
When home loan rates fall, should I reduce my EMI or my tenure?
I suggest keeping your current EMI unchanged and letting the tenure come down instead. Over the long term, a shorter tenure saves you more in total interest cost than a smaller EMI does. So if the aim is to cut what the loan costs you overall, continuing with the same instalment is the way to do it.
Why do MCLR-linked home loans take longer to reflect a rate cut?
With loans linked to MCLR, the lender's internal benchmark, the new rate applies only at the reset, and these loans usually reset anywhere between once every three months and once a year. So a borrower on such a loan may have to wait several months before a cut in rates shows up in the loan.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on debt and loans
After the RBI cut the repo rate to 5.5%, the article explains how lower rates reach home loan borrowers, with repo-linked loans adjusting fastest and MCLR-linked loans lagging. It discusses whether to cut the EMI or the tenure, the costs of switching to an external benchmark, and when prepaying makes sense.
Publisher source
Cut home loan costs: Retain EMI, shorten tenure, consider prepaying