Home loan EMIs to fall, affordability on the rise as RBI cuts repo rate

In a move set to ease the financial burden on millions of home loan borrowers, the Reserve Bank of India (RBI) has slashed the repo rate by 50 basis points to 5.5 per cent, marking the third consecutive rate cut in 2025. With a total reduction of 100 basis points this year, the latest cut is expected to significantly reduce equated monthly instalments (EMIs) and enhance home loan affordability, particularly for floating-rate borrowers.

The central bank has also cut the Cash Reserve Ratio (CRR) by 100 basis points, a liquidity-boosting measure aimed at encouraging banks to lend more actively. This is expected to support not only homebuyers but also real estate developers by improving access to capital for project completion.

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As banks align their lending rates with the reduced repo rate, home loan borrowers are likely to benefit from lower EMIs.

For instance, the EMI on a Rs 50 lakh loan over 20 years could decrease by approximately Rs 3,164 per month. Similarly, loans of Rs 1 crore and Rs 1.5 crore could see monthly savings of around Rs 6,329 and Rs 9,493, respectively.

The rate cut is particularly favourable for those holding repo-linked loans, which reflect changes in the policy rate almost immediately.

However, the benefits are not uniform across all borrowers. While around half of floating-rate loans with public sector banks are linked to the repo rate, a significant portion of borrowers remain tied to the older Marginal Cost of Funds-Based Lending Rate (MCLR) or base rate systems, where transmission of rate cuts is slower.

With current market rates trending lower, borrowers repaying loans at significantly higher rates may consider refinancing to reduce interest costs.

This is especially pertinent for loans linked to MCLR or base rate, where switching to a repo-linked loan could result in substantial savings. Borrowers with strong credit profiles are also likely to benefit from more competitive lending terms in today’s market.

The interest rate cuts are expected to boost housing demand, especially in the mid-income and premium housing segments, as improved affordability revives buyer sentiment. Industry experts predict a rise in property purchases in the coming quarters, further energising the residential real estate market.

As banks begin to adjust their lending rates in response to the RBI’s actions, borrowers are advised to stay informed and consider financial strategies that align with the current low-interest rate environment.