RBI cuts repo rate by 25 bps: EMIs to come down? How home loan buyers could benefit from it | Key points

This move, part of the first monetary policy for the financial year 2025-26, is likely to benefit borrowers, with rates potentially dipping below 8 per cent per annum.

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Given that banks have previously shown hesitation in passing on the full benefits of repo rate cuts to retail borrowers, it will be crucial to observe how major lenders respond to the RBI’s recent decision. If they reduce their rates by around 50 basis points following the RBI’s 25 basis point cut, it will offer substantial relief to home loan borrowers who have been burdened with high interest rates in recent years, Financial Express reported.

HDFC Bank and Axis Bank had earlier confirmed to Moneycontrol that they passed on the full 25-bps benefit to their existing customers.

According to RBI guidelines, banks are required to review interest rates at least once every quarter, though the timing of rate adjustments may vary depending on the loan agreement. New borrowers may also benefit from lower rates in the near future.

How will the latest repo rate cut impact your home loan EMI?

• If a borrower has a ₹50 lakh home loan with a tenure of 20 years and an interest rate of 9 per cent, the EMI is approximately ₹44,986. With a 50 basis point reduction passed on by banks, the new EMI would be around ₹43,391, resulting in savings of ₹1,595 every month and about ₹19,140 annually. Over the loan term, this could lead to a relief of more than ₹3.8 lakh.
• CEO and co-founder of Freo, highlighted that home loan borrowers with floating interest rates tied to the RBI’s repo rate can expect EMI reductions if the RBI cuts by 25 basis points. He also noted that while banks may not immediately pass on the full benefit of the rate cut, borrowers will see some relief.
• All new retail floating-rate loans approved after October 1, 2019, are linked to an external benchmark, typically the repo rate for most banks. The effective interest rate charged to home loan borrowers consists of three components: the repo rate, the spread set by the bank, and the credit risk premium, which is based on the borrower’s credit score.
• Adhil Shetty, CEO of Bankbazaar.com, told Economic Times that the RBI’s 25 bps rate cut would bring home loan rates below eight percent again, with the lowest rates currently ranging from 8.10 to 8.35 percent. He added that prime borrowers (credit score > 750) and refinance cases would benefit most from these rates.
• Shetty also said that homeowners paying significantly higher rates (50 bps or more above current rates) should consider refinancing their loans to take advantage of the lower rates.
• He also added that automatic, immediate, and full rate cuts are only available on repo-linked home loans, which can help borrowers save on interest payments.