The Reserve Bank of India (RBI) has recently cut the repo rate by 25 basis points (bps), bringing relief to home loan borrowers.
This move, announced by the newly appointed RBI Governor Sanjay Malhotra, is expected to lead banks to reduce their floating home loan interest rates by 0.25%.
If you have a home loan between Rs 20 lakh to Rs 1 crore at an interest rate of 9%-13% for 25 years, this reduction in repo rate will significantly impact your Equated Monthly Installment (EMI).
Let’s understand how much you can save and how this decision will benefit home loan borrowers.
What is the RBI Repo Rate Cut?
The repo rate is the rate at which the RBI lends money to commercial banks. When the RBI reduces the repo rate, it becomes cheaper for banks to borrow money, leading to lower lending rates for consumers.
The latest repo rate cut of 25 bps means that home loan interest rates on floating loans will likely decrease by 0.25%.
Impact on Home Loan Borrowers
1. EMI Reduction for Different Loan Amounts
With the repo rate cut, borrowers with floating rate home loans will experience a reduction in their EMIs. Below is an approximate calculation of the potential monthly savings on home loans ranging from Rs 20 lakh to Rs 1 crore.
| Loan Amount | Interest Rate (Before) | EMI (Before) | Interest Rate (After) | EMI (After) | Monthly Savings |
|---|---|---|---|---|---|
| Rs 20 lakh | 9% | Rs 17,998 | 8.75% | Rs 17,712 | Rs 286 |
| Rs 30 lakh | 10% | Rs 28,964 | 9.75% | Rs 28,594 | Rs 370 |
| Rs 50 lakh | 11% | Rs 51,671 | 10.75% | Rs 51,211 | Rs 460 |
| Rs 75 lakh | 12% | Rs 79,164 | 11.75% | Rs 78,540 | Rs 624 |
| Rs 1 crore | 13% | Rs 1,13,526 | 12.75% | Rs 1,12,704 | Rs 822 |
Note: These are approximate calculations based on a 25-year tenure. Actual savings may vary depending on the lender’s decision on rate adjustments.
2. How Borrowers Will Benefit from the Rate Cut
✅ Lower EMIs – The reduction in home loan interest rates leads to a decrease in monthly EMI payments, providing relief to borrowers.
✅ More Savings – With reduced EMIs, borrowers will save a significant amount over the entire loan tenure.
✅ Higher Loan Eligibility – Lower interest rates improve an individual’s loan eligibility, as the EMI burden is reduced.
✅ Boost for the Real Estate Sector – With home loans becoming more affordable, there may be a rise in property purchases, benefiting both buyers and real estate developers.
How Does the Repo Rate Cut Affect Different Types of Borrowers?
1. Existing Home Loan Borrowers
If you already have a floating-rate home loan, you will benefit directly as banks reduce their lending rates. However, those with fixed-rate loans may not see any immediate relief.
2. New Home Loan Applicants
For individuals planning to buy a house, this is the right time to apply for a home loan as interest rates are lower, leading to reduced EMIs.
3. Refinancing Opportunities
Existing borrowers can also consider home loan balance transfer to another lender offering lower interest rates, reducing their EMI burden further.
How to Calculate Your Home Loan EMI After the Rate Cut?
To estimate your new EMI, you can use an online Home Loan EMI calculator by following these steps:
1️⃣ Enter your loan amount (Rs 20 lakh – Rs 1 crore)
2️⃣ Input the new interest rate (after a 0.25% reduction)
3️⃣ Choose loan tenure (typically 20-25 years)
4️⃣ Click calculate to get your revised EMI
Steps to Reduce Your Home Loan Burden Further
🔹 Increase Your EMI Payments – If your financial condition allows, increasing your monthly EMI will help you repay the loan faster.
🔹 Make Prepayments – Whenever possible, making lump sum prepayments on your home loan will significantly reduce the outstanding balance and interest burden.
🔹 Opt for a Balance Transfer – If another bank offers a lower interest rate, you can transfer your home loan to benefit from reduced EMIs.
Conclusion: Should You Take a Home Loan Now?
With the RBI repo rate cut, home loans have become more affordable. If you are planning to buy a house, this could be the right time to apply for a home loan at a lower interest rate.
Existing borrowers with floating rate loans will also benefit from reduced EMIs, leading to long-term savings.
To maximize savings, borrowers should stay updated with interest rate trends, use EMI calculators, and explore options like balance transfers and prepayments.
