The Reserve Bank of India’s (RBI) series of repo rate cuts this year – totaling 100 basis points – has brought some respite to borrowers.
Every 100-bps cut reduces the EMI on a Rs 1 lakh loan (20-year tenure) by about Rs 65 per lakh, translating into savings of Rs 1,625 and Rs 3,250 per month for loans of Rs 25 lakh and Rs 50 lakh, respectively.
However, according to CA Nitin Kaushik, the relief might be temporary if borrowers don’t understand the real cost of their home loans. In a widely shared post on X, Kaushik warned that while buying a house is an emotional milestone, a home loan can easily become the biggest financial trap.
“Most celebrate loan approval like free money,” he wrote. “Reality check: a Rs 50 lakh loan at 8.5% for 30 years means total repayment of Rs 1.4 crore. The loan isn’t a dream – it’s a liability.”
Common mistakes
Mistake 1: Focusing only on EMI affordability
A 20-year, Rs 50 lakh loan costs around Rs 43,400 per month, with total interest of Rs 54 lakh. Stretching the tenure to 30 years reduces EMI to ₹38,600 – but total interest balloons to Rs 88 lakh. “You save Rs 4,800 per month but end up giving the bank Rs 34 lakh extra,” Kaushik noted.
Mistake 2: Ignoring floating-rate adjustments
Even though the RBI cuts rates, lenders don’t always pass them on instantly. Kaushik advised borrowers to track their RLLR-linked (Repo Linked Lending Rate) loans closely to ensure they benefit from policy easing.
Mistake 3: Misunderstanding EMI composition
Many assume EMIs are split equally between principal and interest, but in early years, 70-80% of payments go toward interest. For instance, a Rs 45 lakh loan at 8% for 20 years leaves an outstanding balance of Rs 39 lakh after five years – despite paying Rs 22.5 lakh in EMIs.
Mistake 4: Extending tenure to reduce EMI
It might ease short-term cash flow, but longer tenures exponentially increase interest costs. Instead, Kaushik recommended increasing EMI slightly while keeping tenure unchanged.
Smart hacks to save money
CA Kaushik urges homeowners to look beyond traditional repayment schedules and take charge. He shares five hacks to ease your home loan burden
Hack 1: Pay one extra EMI per year
This small step can save Rs 11.5 lakh in interest and close a Rs 50 lakh loan five years early.
Hack 2: Step-up repayment
By increasing your EMI 5% every year, a 25-year loan can be cleared in 12 years, saving Rs 26 lakh. A 10% annual increase can close the loan in 10 years, saving Rs 36 lakh+. “Let your salary growth fight your debt,” Kaushik advised.
Hack 3: Use tax benefits wisely
Under the old regime, borrowers can claim Rs 1.5 lakh principal (Section 80C) and ₹2 lakh interest (Section 24B) deductions. Co-borrowers can double these deductions, saving up to Rs 7 lakh as a family.
Hack 4: Prepay early
Prepaying during the first 5-7 years yields the biggest benefit since most interest accrues early. “Early action matters more than late,” Kaushik said.
Hack 5: Balance transfer
If your current rate is 8.8% while new loans are available at 7.5%, transferring can save several lakhs in interest – though processing and legal fees must be factored in.
Pro tips and legal rights
No prepayment penalty on floating-rate loans – use bonuses or tax refunds for lump-sum payments.
After 10-12 years, prepayments offer diminishing returns – extra funds are better invested in Nifty50 or mutual funds (approx. 12% CAGR).
As per RBI rules, lenders must return property documents within 30 days of full repayment. Always verify title deeds, NOC, and lien removal.
Kaushik concluded, “Your home loan can be a 30-year trap – paying Rs 1.5 crore on Rs 50 lakh – or a 10-year smart loan, saving Rs 36 lakh. The difference? Awareness and discipline.”