The Reserve Bank of India (RBI), under the leadership of Governor Sanjay Malhotra, has announced a 25 basis point cut in the repo rate, reducing it from 6.25% to 6%. The RBI introduced this move as part of the first monetary policy for the financial year 2025–26, and experts expect it to ease home loan interest rates. Borrowers could benefit from this decision, with rates potentially falling below 8% per annum.
Will The Home Buyers Benefit?
It is important to watch how the major lenders react to the 25 basis point cut. However, banks often don’t pass on the full benefit of repo rate cuts to regular customers. Meanwhile, if they reduce their loan rates by around 50 basis points, it will be a big relief for home loan borrowers who’ve been paying high interest rates for the past few years. According to a Moneycontrol report, HDFC bank and Axis bank had earlier confirmed that they passed on the full 25-bps benefit to their existing customers.
What RBI Says
The RBI has rules that say banks must check and update their interest rates at least once every three months. However, the exact timing of any rate change depends on the loan terms. Accordingly, it can be assessed that the people taking new loans might soon get lower interest rates.
How Will The Latest Repo Rate Impact Your Home Loan?
The Reserve Bank of India (RBI) has reduced the repo rate for the second time this year, bringing it down to 6%. The first rate cut occurred on February 7, 2025, when the RBI lowered the rate to 6.25% with a 25 basis point reduction — marking the first such cut in five years. This will benefit the borrowers by 50 basis points due to two time reduction repo rate.
If you take a home loan of ₹40 lakhs for a tenure of 20 years at an interest rate of 9%, your monthly EMI will be approximately ₹35,989. However, if the interest rate is reduced to 8.5%, the EMI comes down to around ₹34,713. This results in a monthly saving of ₹1,276. Over the course of a year, this amounts to savings of ₹15,312. Extending that over the full 20-year loan period, the total savings would be approximately ₹3,06,240.
Retails Floating-Rate Loans
Most banks link all new retail floating-rate loans they sanction after October 1, 2019, to an external benchmark, typically the RBI’s repo rate. Banks calculate the final interest rate they charge home loan borrowers by combining three key components: the repo rate that the Reserve Bank of India sets, the spread that the bank itself decides, and a credit risk premium that varies based on the borrower’s credit score. So, even if the RBI reduces the repo rate, the borrower will benefit only if the bank adjusts its spread and assesses the borrower’s creditworthiness favorably.
