Home Loan EMI increase: Starting April 2025, many people will have more money in their pockets thanks to new income tax cuts announced by Finance Minister Nirmala Sitharaman in the 2025-26 budget. Along with this, many salaried workers will also get their annual raises and bonuses around the same time. This means more cash to spend or save. Experts suggest using this extra money wisely to pay off debts and invest for the future.
Why You Shouldn’t Reduce Your EMI
The Reserve Bank of India (RBI) recently cut the repo rate by 25 basis points, which means home loan interest rates may go down. While some people might think of reducing their monthly EMI (Equated Monthly Instalment), it’s better to keep the EMI the same. When interest rates drop, banks usually keep the EMI amount unchanged but reduce the loan tenure. This helps you save more on interest over time.
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For example, if you have a 20-year home loan at 8.5% interest and have already paid 12 EMIs, a rate cut to 8.25% can save you Rs 8,114 per lakh if you don’t change your EMI. If you reduce the EMI, you’ll only save Rs 3,472 per lakh. This shows how keeping the EMI the same can help you save more money in the long run.
“To give you a simple example: say, you have a 20-year loan at 8.5 percent interest and have paid 12 EMIs by March. Now, when your interest drops to 8.25 percent from April, on a per lakh basis, you’ll save Rs 8,114 if you don’t change your EMI (as the tenure will reduce), compared to Rs 3,472 if you reduce the EMI, as that won’t reduce the tenure. That is, 133 percent higher savings in this case, which demonstrates the power of tenure adjustment,” says Adhil Shetty, CEO, BankBazaar.com, reported by Money Control.
Why Increasing Your EMI is a Good Idea
When interest rates go down, you can choose to increase your EMI. This will help you pay off your loan faster. For example, if you increase your EMI by Rs 5,000, you could reduce your loan tenure from 25 years to just over 17 years. This means you’ll pay 92 fewer EMIs and save a lot of money on interest.
“Given the double bonanza of a repo cut and favourable tax rates, the borrower can easily increase the EMI by Rs 5,000, which will reduce the overall loan tenor to 208 months from the original 300 months (25 years), resulting in 92 fewer EMIs,” says Patel.
If you earn a gross salary of Rs 25 lakh, the new tax cuts could save you around Rs 1.14 lakh. You can use this extra money to increase your EMI and get out of debt quicker.
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Use Bonuses to Make Part-Prepayments
Many people get annual bonuses and salary hikes in April. This is a great time to make part-prepayments on your home loan. For example, if you make a one-time payment of Rs 50,000, you can reduce your loan tenure by five more EMIs. If you combine this with increasing your EMI by Rs 5,000, you could end up paying 97 fewer EMIs in total.
It’s important to plan these part-prepayments carefully. Set a goal for when you want to pay off your loan, like reducing a 25-year loan to 10 years. Ask your bank for an updated loan schedule and calculate how much you need to pay each year to meet your goal.
