Save Interest on Home Loan by Over ₹26 Lakhs by Doing This with Your EMI

The financial year 2025-26 brings double good news for salaried individuals. Finance Minister Nirmala Sitharaman has announced generous income tax cuts, boosting disposable income for many taxpayers. Additionally, annual increments and performance bonuses typically disbursed around this time further contribute to higher earnings.

For home loan borrowers, this extra cash presents a valuable opportunity to reduce liabilities and save significantly on interest payments. With the Reserve Bank of India (RBI) cutting the repo rate by 25 basis points (bps) on February 7, making the right financial decision can mean saving lakhs over the tenure of your home loan.

Why You Should Retain or Increase Your EMI Instead of Reducing It

A common reaction to lower interest rates is to reduce the Equated Monthly Instalment (EMI) to free up more cash flow. However, this approach is not always the best financial move. When interest rates decline, banks typically retain the EMI amount and shorten the tenure of the loan unless a borrower specifically requests a lower EMI.

While a lower EMI might seem appealing, it comes at the cost of paying more interest over time. By maintaining the same EMI or even increasing it slightly, borrowers can significantly reduce their loan tenure and total interest outgo.

For example, let’s consider a borrower who has taken a 20-year home loan of ₹50 lakh at an interest rate of 8.5% per annum. If they have already paid 12 EMIs by March and their interest rate drops to 8.25% from April, the savings potential is remarkable:

• By retaining the EMI, the borrower will save ₹8,114 per lakh over the tenure.
• If they reduce the EMI, the savings drop to ₹3,472 per lakh.
• That’s a 133% higher savings in the first scenario.

Clearly, opting for a tenure reduction instead of lowering the EMI results in substantial interest savings.

The Impact of Increasing EMI Payments

When the RBI hikes repo rates, banks are required to provide borrowers with options such as increasing their EMIs, extending the loan tenure, or using a combination of both. Similarly, in a falling rate environment, it is beneficial for borrowers to proactively approach their banks to increase their EMI or make a part-prepayment.

By increasing the EMI by just ₹5,000, a borrower can achieve significant financial benefits:

• Loan tenure reduces from 300 months (25 years) to 208 months (17.3 years).
• Interest outgo drops from ₹70.78 lakh to ₹44.13 lakh, saving a staggering ₹26.65 lakh.
• A total of 92 EMIs are saved, meaning the borrower achieves debt freedom much sooner.

Considering that a salaried individual earning ₹25 lakh per year will save around ₹1.14 lakh annually due to tax cuts, these additional savings can be directly redirected towards an EMI hike, making it an excellent strategy to accelerate loan repayment.

Comparing Different Scenarios: How Much Can You Save?

The following table illustrates the financial impact of different approaches to managing a home loan after the RBI’s rate cut:

The Impact of Increasing EMI Payments

When the RBI hikes repo rates, banks are required to provide borrowers with options such as increasing their EMIs, extending the loan tenure, or using a combination of both. Similarly, in a falling rate environment, it is beneficial for borrowers to proactively approach their banks to increase their EMI or make a part-prepayment.

By increasing the EMI by just ₹5,000, a borrower can achieve significant financial benefits:

• Loan tenure reduces from 300 months (25 years) to 208 months (17.3 years).
• Interest outgo drops from ₹70.78 lakh to ₹44.13 lakh, saving a staggering ₹26.65 lakh.
• A total of 92 EMIs are saved, meaning the borrower achieves debt freedom much sooner.

Considering that a salaried individual earning ₹25 lakh per year will save around ₹1.14 lakh annually due to tax cuts, these additional savings can be directly redirected towards an EMI hike, making it an excellent strategy to accelerate loan repayment.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.