The Reserve Bank of India (RBI) is going to declare its monetary policy on Wednesday. Experts estimate that RBI may cut the repo rate by up to 0.25 percent. If this happens, it will reduce the interest rates of home loan, which will directly affect your monthly EMI (Equated Monthly Installment). Low interest rate means low EMI, which can give more relief to your monthly budget. In such a situation, it is important to understand some smart measures related to home loan, especially the benefits of pre-payment (advance payment) of the loan, which can reduce your financial burden to a great extent.
Home Loan Pre-payment: A Smart Financial Step
Paying home loan EMI prematurely is always considered a sensible decision. This not only reduces the interest charged on your loan, but also shorten the loan duration (tenure). When you prepare, your principal (principal amount) decreases, which reduces the total interest burden. For example, if you pay some additional amount of your home loan from time to time, you can save millions of rupees in a long time. This is an effective way to strengthen your financial future.
Positive impact on cibil scores
The pre-payment of home loan not only reduces your EMI and interest, but also improves your CIBIL score. CIBIL score is an important criteria of your credit credibility, which decides how much bank the bank will trust you in future. A good CIBIL score (usually 750 or more) helps you get a loan at low interest rates. Regular and premature payment reflects your financial discipline, which increases your score and makes it easier to take a loan in future.
Current home loan interest rates
By April 2025, home loan interest rates of India's major banks such as State Bank of India (SBI), Kotak Mahindra Bank, HDFC Bank, ICICI Bank and other banks are between 8.25% to 10.25%. If the RBI cuts the repo rate, there is a possibility of further decrease in these rates. This can be a golden opportunity for those who are planning to take home loans or refine the existing loan.
Benefits of floating rate and pre-payment
According to Rishi Anand, MD and CEO of Adarsh Housing Finance Limited, if your home loan is at floating interest rate, pre-payment can be a very beneficial step. The floating rate is the interest rate that varies over time and is usually linked to the repo rate of RBI. If the repo rate is low, your interest rate also decreases, and if the repo rate increases, the interest rate increases. The good thing is that the pre-payment penalty is not available on the home loan with floating rate, so that you can repay the share of your loan first without any additional cost.
Long-term profit of pre-payment
Home loan pre-payment is not limited to saving only interest. It also strengthens your financial future. When you repay your loan quickly, your monthly savings increase, which you can put in other investment options such as mutual funds, stock market, or retirement plan. In addition, due to the reduction of loan burden, you also remain mentally relaxed, which affects the quality of your life.
Strong financial base for future can be ready
RBI's upcoming monetary policy and potential repo rate cut may bring relief news for home loan holders. At this time, by adopting smart financial measures like home loan pre-payment, you can not only reduce your EMI and interest burden, but can also prepare a strong financial basis for the future by improving your CIBIL score. If your loan is at floating rate, the benefits of pre-payment increase even more. Therefore, assess your financial situation and take a strategy of pre-payment and take steps towards repaying your home loan quickly.
