The burden of equated monthly instalments (EMIs) is set to get lighter for prospective home and car buyers while existing home loan borrowers can witness a decline in their loan tenure.
If banks cut their base rate by 25 basis points following the 25 basis points cut in repo rate by the Reserve Bank of India (the rate at which the central bank lends to commercial banks) then that will result in your home loan rate reducing by the same amount.
If the interest rate on a floating rate 20-year home loan comes down from 10.5 per cent to 10.25 per cent then the EMI on a Rs 25 lakh loan would come down by Rs 418 or from Rs 24,959 to Rs 24,541.
While the Reserve Bank of India has maintained that inflation is expected to remain low at under 6 per cent till January 2016, experts feel that the policy rates may go down by up to 100 basis points (1 percentage point) in the calendar 2015.
In that case, the base rate could come down by up to 100 basis points and the savings for monthly instalment payers would go down significantly.
Going by the earlier example, if the interest rate comes down from 10.5 per cent to 9.5 per cent, the EMI for the Rs 25 lakh loan would go down by Rs1,656 or an annual savings in installments of Rs 19,872 for a new customer.
For an exiting home loan customer, either the EMI can come down by up to Rs 1,656 per month or the tenure on the outstanding loan can go down by up to 40 months for a 20 year loan.
If the remaining tenure is 240 months, then the revised tenure will go down to 200 and in case the remaining tenure of the loan is 180 months, then it would go down to 160 months.
While car loans are mostly fixed rate loans, existing customers will not witness any benefits, but new customers will benefit from a low interest rate regime.