Big savings for home loan borrowers as EMIs to fall significantly after RBI cuts repo rate by 50 bps

The Reserve Bank of India (RBI) is continuing the trend of delivering good news to home loan borrowers, especially in 2025. The RBI has decided to cut the repo rate by 50 basis points (bps). The latest cut in the repo rate means that the interest rate on home loans will decrease, which means that EMIs or the tenure of the home loan will also come down. The central bank has also cut the Cash Reserve Ratio (CRR) by 100 basis points to 3% from 4% earlier. With the CRR and repo rate cut, banks will be more comfortable in cutting home loan interest rates. The RBI has changed the monetary policy stance from accommodative to neutral in today's monetary policy meeting. This means that with a 100 bps repo rate cut so far, the future rate cut is less certain and will largely depend on inflation and growth trends.

It is worth noting that the RBI has reduced the repo rate by a total of 50 basis points in February and April 2025. With the current 50-basis-point cut, the repo rate has fallen by 100 basis points overall in the first half of 2025.

Also read | What should FD investors do now as interest rates to fall further with RBI cutting repo rate again by 50 bps

Aman Trehan, Executive Director, Trehan Iris, said, “The RBI's 50 basis point reduction in the repo rate to 5.5% is a significant boost for the real estate sector. Lower borrowing costs will make home loans more affordable, enhancing buyer sentiment, particularly in the affordable and mid-income segments. Additionally, the 100 basis point cut in the Cash Reserve Ratio improves liquidity, enabling banks to pass on the benefits to consumers more effectively.”

How much will home loan borrowers save after the latest repo rate cut?

Deepak Kumar Jain, Founder and CEO of CredManager, says, "With the RBI announcing a third rate cut this calendar year—bringing the total repo rate reduction to 100 basis points (bps)—we’re seeing a gradual but positive shift for borrowers. Although each cut, including the recent 50 bps reduction, may seem modest in isolation, cumulatively, they help ease the overall cost of borrowing. For instance, on a Rs 50 lakh home loan over 20 years, the EMI drops by around Rs 3,164. For loans of Rs 1 crore and Rs 1.5 crore, the monthly savings are approximately Rs 6,329 and Rs 9,493, respectively. While these savings aren’t massive, they do improve affordability, especially in a high-cost housing market."

Also read | Rs 7.71 lakh savings on Rs 50 lakh home loan: Check how much you will save after RBI’s 50 bps repo rate cut

A home loan borrower has an outstanding loan of Rs 50 lakh at an 8.5% interest rate and 20-year tenure. With a 100 bps rate cut so far, the total interest savings will be Rs 7.47 lakh in the entire tenure. This will happen because total interest payments will decrease from Rs 54.14 lakh to Rs 46.67 lakh over a 20-year tenure. Now, if you decide to keep the same tenure, then your EMI will fall down from Rs 43,391 to Rs 40,280 - savings of Rs 3,111 per month.

If you keep the same EMI of Rs 43391, the tenure of your home loan will reduce substantially from 20 years to 17 years - a drop by almost three years. This will end up with huge interest savings of Rs 15.44 lakh.

Why RBI has cut repo rate for the third time this year?

Certain reasons have prompted the RBI to consider a third rate cut. According to the Bajaj Broking report, "Headline CPI inflation remains consistently below the RBI's medium-term target of 4%."

According to the government's data, the CPI Inflation in March 2025 was 3.34%. This further decreased to 3.16% in April 2025.

According to the SBI Research Report, "CPI Inflation may come down to 2.9% in Q1 FY26 as food inflation is expected to be within the target in June quarter. Above normal monsoon prediction by IMD, strong arrival of crops and decline in crude oil prices revising down our CPI estimate to 3.5% in FY 26 with downward bias."

Another reason for the RBI's repo rate cut is the expectation of muted credit growth in FY26. As per the SBI research report, the commercial banks' credit growth slowed to 9.8% as on May 16, 2025, compared to 19.5% in the last year. During April and May, credit declined by Rs 15,676 crore, while deposits grew by Rs 3.06 lakh crore. A decent credit growth is required for economy to maintain its growth and a lower interest rate helps in boosting the credit demand.

The economy is also not growing at the rate to match its true potential. "GDP growth appears to be softening, worsened by external shocks such as trade disruptions from recent U.S. policy moves," said Bajaj Broking in its report. With inflation being firmly in grip, focus of the central bank shifts towards economic growth and a lower rate regime helps in boosting economy.

Home loan borrowers: What should be your action plan now?

With the latest repo rate cut, home loan EMIs are expected to decrease further. Following the 50-bps repo rate cut by the RBI in February and April 2025, many banks have recently reduced their repo-linked EBLRs by a similar magnitude. However, many borrowers are still with old interest rate regimes like MCLR, base rate and BPLR, so, the quantum and speed of benefit of interest rate reduction will vary for them.

Santosh Agarwal, CEO, Paisabazaar, says, "The 50-basis-point rep rate cut should lead to reduction in home loan interest rates, both for new and existing home loan borrowers. However, the quantum and time of the rate cut transmission would depend on factors like type of interest rate benchmarks used by the lenders, their rate reset related policies regarding, rate reset dates set for the borrowers, etc. The transmission would be quickest and absolute in case of existing home loans linked to the repo rate. The exact date of rate cut transmission to the existing borrowers would depend on the rate reset dates set by their respective lenders. Till then, they will continue to repay their loans as per their existing interest rates. As the cost of funds of the lenders play a major role in determining their internal benchmark rates, there would be a longer lag in the transmission of repo rate cuts to home loans linked to MCLR- or other internal benchmarks."

Home loan linked to EBLR: As a majority of floating rate interest rate of home loans taken from banks is linked to an External Benchmark Lending Rate which is repo rate in most cases, then with the latest repo rate cut, your home loan interest rate will come down further in the coming months.

"The majority of new home loans in India today are linked directly to the RBI’s repo rate, under the Repo Linked Lending Rate (RLLR) framework introduced in 2019. As a result, changes in the repo rate are typically transmitted quickly to borrowers through lower interest rates and reduced EMIs," says Yashish Dahiya, Chairman & Group CEO of PB Fintech.

Once the lender decides to go for reduction of interest rate, it will give you the option to either reduce your EMI by keeping same home loan tenure or keep the EMI unchanged and get reduced home loan tenure. According to experts and as per our calculations above, reducing your home loan tenure offers more benefits in the long term.

Home loans linked to MCLR, base rate or BPLR: 35.9% of loans are linked to MCLR as per the SBI research report. MCLR has a longer reset period than EBLR. In a falling interest rate scenario, it is beneficial to have an interest rate regime which is faster in passing the benefit of interest rate reduction. If your home loan is still linked to the MCLR or any other loan regime, then you should switch to the EBLR-based regime to get quicker benefit of interest rate reduction and save on interest costs.

How much repo rate can RBI cut in the current FY 2025-26?

The SBI research report anticipates that the RBI will cut the repo rate by 100 basis points in FY 2025-26. The central bank has already reduced the repo rate by 25 basis points in April 2025. With the current cut of 50 bps, there is still scope for 25 bps reduction in the coming months.