Waiting for interest rate cuts on home loan to buy your dream house? Here's why a delay may not help
interest rate cut to lower your EMI burden. Months pass and the rate cut finally happens, but the price tag of the property has gone up.
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As a prospective home buyer, it’s natural to fixate on interest rates. After all, a lower rate means lower EMI, and that feels like a win. Though most analysts are expecting rate cuts this year, they are divided over the timing and the extent of the relief. “We expect the RBI to remain vigilant against an inflation rebound. As a result, we expect a total cut of only 50 basis points (bps) in the current rate cut cycle, starting with a cut of 25 bps in February,” says an HSBC Research report. Analysts at Nomura are more optimistic. “The underlying inflation is already aligned closer to the RBI’s 4% target, and as food prices ease, inflation is likely to undershoot the RBI forecasts. We expect the RBI to cut its policy rate by a cumulative 100 bps to 5.5% by mid-2025,” states a report.
This paints a positive picture, but these cuts may not yield the savings that borrowers are hoping for. Let’s break it down. A 25-bps rate cut on a Rs.50 lakh loan for 20 years at 9% will reduce the EMI by merely `800 (see graphic). If rates are cut by 50 bps, the EMI will reduce by around Rs.1,600. Only a bigger cut of 100 bps would bring down the EMI significantly, but it is very unlikely that the RBI will reduce rates to that extent.
