After controlling inflation, now RBI’s focus is on encouraging economic development. In view of this, the central bank has announced a 0.25 percent reduction in repo rate. RBI has cut the repo rate rate by up to 0.50 per cent since February. Let me tell you that the repo rate is the rate on which the RBI gives loans to other banks for a short period. Due to changes in these rates, it also affects the bank’s interest rates. That is, when the rate of repo rate is cut, then common customers get relief in debt EMI.
Benefits both old and new customers
Whenever the repo rate decreases, the bank also cuts its loan product i.e. interest rates and new borrowers can get a loan on interest. But this does not mean that those whose loans are already running, will not benefit from it. If your loan is fixed rate, then the change in repo rate will not affect the debt unless you change your loan fixed rate.
But home loans are often based on floating rate systems for long periods and are attached to the repo rate. If the RBI has reduced the repo rate, then the interest rates of home loan with your floating rate will also be reduced. This is the reason that while giving a loan, the bank makes an agreement with the customers, in which a reset date of debt is fixed, which is often once once in three months.
How much will the effect be on EMI
Telling you as an example, a customer has taken a home loan of 30 lakh rupees according to a period of 20 years. If the interest rate is 9 percent, then its monthly EMI will be Rs 26,992. But after a total reduction in the repo rate by 0.50 per cent (including February and April deduction) if the interest rate of home loan will be reduced to 8.50 per cent, which will reduce EMI to 26,035. This will save your every month of Rs 957. So this savings can reach Rs 2,29,680 throughout the 20 years.