Dont reduce Your EMI Even If Interest Rates are Reduced - Home Loan Blog - Tata Capital

Don't Reduce Your EMIs Even if Interest Rates are Reduced

Mar 09, 2017

EMIs are the worst part about taking a loan. You cannot deny that. Giving up a large part of your monthly income, year after year is not easy. It can be quite a exasperating experience that can take its own mental toll.

This is the reason that whenever there is a chance to reduce the loan EMIs, people prefer doing it. This is inspite of the fact that paying a lower EMI means that your tenor will increase (for a fixed interest rate). It also means that over the full course of loan, they will end up paying more interest.

Let us try to understand why it makes sense to continue paying high EMIs.

Suppose you have taken a 25-year home loan of Rs 40 lac at a rate of 10.5%. You would be paying an EMI of around Rs 37,767 for this loan.

Now after a few months of repayment, it comes to your notice that RBI has reduced key policy rates and your lender too is ready to reduce your rate. The new rate being offered is 10.0%. According to this rate, the new EMI will be lower at Rs 36,348, which is approximately Rs 1400 less than original one.

But what will happen if you continue paying the same old EMI of Rs 37,767 even after the rate cut?

The answer is that it will reduce your loan tenure by 3.5 years! That is not all. You will also save more than Rs 12 lacs on total interest that you pay during the full tenure of your loan.

The point is that when you are paying almost Rs 38,000 a month, paying a few hundred (or thousand) more won't derail your budget. But it will definitely help you save quite a lot of money. So if you have a chance to reduce your EMI, help yourself by politely refusing to reduce it. And if possible, try to pay higher EMIs.