In a move that could significantly impact borrowers, the Reserve Bank of India (RBI) has announced a repo rate cut of 25 basis points, bringing it down from 6.5% to 6.25%. This is the first rate cut in five years and is expected to ease borrowing costs for millions of homebuyers and businesses across the country.
The decision, made during the Monetary Policy Committee (MPC) meeting, was led by RBI Governor Sanjay Malhotra and comes at a crucial time when the Indian economy is looking to maintain its growth momentum while ensuring liquidity in the financial system. Alongside the repo rate reduction, the Standing Deposit Facility (SDF) rate has been revised to 6.0%, while the Marginal Standing Facility (MSF) and Bank Rate are now at 6.5%.
With home loans directly linked to the repo rate, the big question remains: Will your EMI go down? Let’s explore what this means for existing and new borrowers.
How Does the Repo Rate Affect Home Loans?
The repo rate refers to the interest rate at which the Reserve Bank of India (RBI) provides loans to commercial banks. When the repo rate is reduced, banks can borrow at a lower cost, which typically leads them to reduce their lending rates. This, in turn, makes home loans, auto loans, and other borrowings cheaper for consumers.
For existing borrowers with floating rate home loans, a reduction in repo rate usually translates into a direct reduction in Equated Monthly Installments (EMIs) or a shorter tenure. However, borrowers with fixed-rate home loans will not see an immediate impact unless they choose to refinance at the new lower rates.
How Much Can You Save on Your Home Loan?
The reduction in the repo rate could bring significant savings for borrowers, particularly those with long-term loans. According to Adhil Shetty, CEO of BankBazaar, the impact of the 25 basis point rate cut can be substantial over the tenure of a home loan.
Potential Savings for Borrowers
| Loan Amount | Old Interest Rate (8.75%) | New Interest Rate (8.50%) | EMI Reduction | Total Savings Over 20 Years |
| ₹30 Lakh | ₹26,568 | ₹25,933 | ₹635 | ₹1.52 Lakh |
| ₹50 Lakh | ₹44,280 | ₹43,222 | ₹1,058 | ₹2.54 Lakh |
| ₹75 Lakh | ₹66,420 | ₹64,833 | ₹1,587 | ₹3.81 Lakh |
| ₹1 Crore | ₹88,560 | ₹86,444 | ₹2,116 | ₹5.08 Lakh |
(Source: BankBazaar Analysis)
Shetty further noted that borrowers should also consider refinancing options if they can secure a lower interest rate, as this can lead to additional savings over the tenure of the loan.
Will Banks Pass on the Benefit?
While the RBI’s decision is expected to make borrowing cheaper, the real impact on home loan EMIs depends on how quickly banks pass on the benefit to consumers.
Historically, banks have been slow to reduce their lending rates, often citing liquidity concerns. If banks do not immediately revise their Marginal Cost of Funds-based Lending Rate (MCLR) or their Repo Rate Linked Lending Rate (RLLR), borrowers may not see the benefits right away.
However, with increasing competition among banks and growing pressure from regulatory bodies, most financial institutions are expected to announce a reduction in lending rates in the coming weeks.
Impact on Homebuyers: A Boost for Real Estate?
Industry experts believe that the repo rate cut will enhance affordability and boost home sales, especially in the mid-income and luxury segments.
Yashank Wason, Managing Director of Royal Green Realty, stated:
“The repo rate, which has remained unchanged since February 2023, has been reduced. This reduction will help homebuyers by lowering EMIs and making refinancing options more appealing, potentially boosting demand for residential properties.”
Rajat Khandelwal, Group CEO of Tribeca Developers, emphasized the impact on the premium real estate market:
“Lower borrowing costs improve financial predictability and strengthen buyer confidence. This will sustain real estate growth, particularly in Mumbai Metropolitan Region (MMR), National Capital Region (NCR), and Pune.”
However, rising property prices could offset some of the benefits from lower interest rates. According to Anuj Puri, Chairman of ANAROCK Group, housing prices have seen a 30% increase in NCR and an average 21% rise across the top 7 cities in India in 2024.
Impact on Commercial Real Estate & REITs
Beyond residential properties, the rate cut is expected to positively impact commercial real estate and Real Estate Investment Trusts (REITs).
- Lower borrowing costs will encourage businesses to invest in office spaces, increasing commercial property demand.
- REITs, which offer stable returns, may become more attractive in a lower interest rate environment, boosting investor confidence in the sector.
What About Inflation and Future Rate Cuts?
One of the biggest concerns following a rate cut is its impact on inflation. The RBI has maintained that its primary objective remains controlling inflation, which has been volatile in recent months. If inflation continues to rise, future rate cuts may not be possible in the short term.
Manik Malik, CFO of BPTP, commented:
“This prompt action will foster growth in the real estate sector, boost investor confidence, and contribute to the stability of property values.”
However, the full impact of the repo rate reduction will depend on how inflation trends in the coming months and how quickly banks transfer the benefits to borrowers.
Conclusion: What Should Borrowers Do?
For borrowers, the RBI’s rate cut is good news, but the key takeaway is to stay informed and act proactively. Here’s what you can do:
Monitor your bank’s response – Check if your lender has revised the interest rate on your home loan.
Consider refinancing options – If you have a high-interest home loan, refinancing to a lower rate could help you save lakhs over time.
Make partial prepayments – Use any savings from lower EMIs to make prepayments, reducing your loan tenure.
Evaluate new home loan options – If you’re planning to buy a property, now might be a good time to lock in a lower rate.
With banks expected to reduce lending rates soon, borrowers can look forward to cheaper home loans and reduced EMIs in the near future. However, the extent of these benefits will largely depend on how banks and inflation dynamics play out in the coming months.
Stay tuned for more updates as we track the impact of this crucial rate cut on the Indian economy and home loan borrowers.