₹40 lakh home loan: How much can you save if interest rate falls from 10% to 9% over 10, 20, 30 years?

A ₹40 lakh home loan at 9% instead of 10% could save borrowers ₹2.63 lakh over 10 years, ₹6.27 lakh over 20 years and ₹10.50 lakh over 30 years. Here is a breakdown of monthly EMIs, interest costs and repayment strategies. 

If you are availing a fresh home loan, even a minor reduction in the applicable interest rates can alter the repayment trajectory of your loan- it can go a long way towards helping you save money, even if the rates are reduced only slightly.

This is because even a minor one-percentage-point reduction in home loan interest rates can reduce a borrower’s interest costs over different repayment periods.

For someone taking a ₹40 lakh home loan, reducing the annual interest rate from 10% to 9% could save them approximately ₹2.63 lakh over 10 years, ₹6.27 lakh over 20 years and ₹10.50 lakh over 30 years.

Such a saving also translates into lower equated monthly instalments (EMIs), thus making the home loan more affordable.

Here is a breakdown of the calculations in both cases (9% and 10%), assuming the interest rate remains unchanged throughout the loan term.

Home loan EMI at 10% vs 9%: How much can you save?

The home loan EMI is calculated using the standard monthly reducing-balance formula:

EMI = P × r × (1 + r)ⁿ ÷ [(1 + r)ⁿ − 1]

Where:

• P = Principal loan amount ( ₹40,00,000)
• r = Monthly interest rate (annual interest rate divided by 12)
• n = total number of monthly instalments (loan tenure in years multiplied by 12)