Buying a home with the help of a loan is one of the biggest financial decisions you will make. You repay it through equated monthly instalments (EMIs) that continue for a long period, sometimes up to 30 years. Given the size and duration of this commitment, it should not be a one-time decision that you set and forget. It deserves regular attention and review to ensure you are still getting the best possible deal, especially with changing interest rates and market conditions.

The Reserve Bank of India (RBI) recently revised the repo rate to 5.50 per cent. The repo rate is the rate at which the central bank lends to commercial banks. A reduction in the repo rate typically brings lending rates down. This gives existing home loan borrowers a chance to revisit their interest rates and the EMIs they are paying. Despite falling rates, many borrowers continue servicing older, higher-interest loans, often unaware of how much they could save. The recent reduction in the Cash Reserve Ratio (CRR) has encouraged banks to lower lending rates further. But unless you actively review your home loan terms, these benefits may not reach you. A periodic check, especially after every RBI policy, can help align your loan with the current market trend. Here is how reviewing your home loan helps:

You May Be Paying A Higher EMI Than Necessary

Most home loans today are linked to the repo-linked lending rate (RLLR). When the repo rate falls, your loan rate should also reduce. But in reality, the benefit is often delayed or partial. For example, if you took a loan two years ago when the repo rate was 6.5 per cent and your bank added a 2 percent spread, your interest rate would have been 8.5 percent. Today, with the repo at 5.5 percent and lower spreads, new borrowers might be paying 6 percent or even less. A 0.5 per cent difference on a ₹50 lakh loan over 20 years could cost you around ₹5 lakh extra. Your interest rate will not change automatically. You must request your bank for a revision.

Your Old Spread

While the repo rate is uniform, the spread that your bank adds can vary widely. It depends on your credit profile and market conditions at the time you took the loan. Lenders usually do not reduce this spread even if your financial standing improves. This is why reviewing your loan periodically is important. Understanding the spread helps you decide whether it is time to switch or transfer your loan to another bank with better terms.

RBI's CRR Cut

In its latest policy, RBI reduced the Cash Reserve Ratio, which is the portion of deposits banks must maintain with the central bank. This gives banks more funds to lend, pushing them to offer lower interest rates, especially to new customers. But existing borrowers are often left out of these revised terms unless they initiate the discussion. If your bank is offering new home loans at 8.25 per cent but you are still paying 9 per cent, it is time to ask for a revision. A quick check could result in thousands of rupees saved every month.

Fixed vs Floating: Why Old Fixed Loans May Be Costing You More

If you opted for a fixed-rate loan five to seven years ago, you could be paying over 9 per cent interest today. In contrast, floating-rate loans now average around 8 percent. Let’s say you took a ₹30 lakh fixed-rate loan at 9.2 per cent in 2018. A friend who took a floating-rate loan at 8.1 per cent in 2023 would be saving ₹2,700 per month, or ₹32,400 per year, on the same amount. If your loan’s lock-in period has ended, switching to a floating rate could be a smart move. Just make sure to compare charges and transfer offers before making a decision.

Balance Transfer Can Help Lower Your Loan Cost

A balance transfer allows you to shift your remaining loan to another bank that offers a lower interest rate. Although there may be processing fees and paperwork involved, even a small drop in interest, like 0.5 per cent, can save you lakhs over the full loan term. This is especially useful for borrowers who still have a long tenure left.

Every RBI policy can shift the lending landscape. Sometimes these changes can benefit you, but only if you take action. Reviewing your home loan regularly ensures you are not missing out on potential savings. A small interest rate adjustment today could lead to big financial gains tomorrow.

(The author is the CEO at BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar)