The Reserve Bank of India (RBI) has recently cut the repo rate by 25 basis points, bringing it down from 6.5% to 6.25%. This is the first rate cut in five years, and it’s great news for home loan borrowers. But what does this mean for you, and how can you reduce your home loan EMI? Let’s break it down in simple terms.
What is the Repo Rate, and How Does It Impact Home Loans?
The interest rate at which the RBI loans money to banks is known as the repo rate. Banks usually lower their lending rates when the RBI cuts the repo rate. This means home loans become cheaper, and your Equated Monthly Installments (EMIs) can go down.
For example, if you have a home loan with a floating interest rate, a repo rate cut can directly reduce your EMI. Even for new homebuyers, lower interest rates make borrowing more affordable.
How Much You Can Save On Home Loan EMI After The RBI Repo Rate Cut?
According to Adhil Shetty, CEO of BankBazaar, a 25 basis point cut can lead to significant savings. Here’s how:
- If you have a 20-year home loan of ₹50 lakh at 8.75% interest, and you’ve already paid 12 EMIs, the rate cut could save you ₹4.20 lakh over the loan tenure.
- Your loan tenure could also be reduced by 10 EMIs, meaning you pay off your loan faster.
Shetty also suggests exploring refinancing options. If you refinance your loan at a rate 50 basis points lower (say, 8.25%), you could save ₹14,480 per lakh over the remaining tenure. That’s nearly 15% savings per lakh!
The New Tax Allowance Is Added Bonus
The recent Budget 2025 has made income up to ₹12 lakh tax-free under the new tax regime. There is also a standard deduction of ₹75,000. For salaried individuals, this means more disposable income, which can help in managing EMIs better.
Also Read: No Tax Upto 12 Lakhs: Budget 2025 Turns In Favour of Homebuyers
Will Repo Rate Cut Boost for Property Demand?
Yes! Experts believe the repo rate cut will make homes more affordable and boost sales. Here’s what industry leaders have to say:
- Yashank Wason, Royal Green Realty: “Homebuyers will profit from reduced EMIs and lucrative refinancing choices.”
- Rajat Khandelwal, Tribeca Developers: “Lower borrowing costs will strengthen buyer confidence, especially in premium markets like Mumbai, Delhi-NCR, and Pune.”
- Anuj Puri, ANAROCK Group: “Although encouraging, growing real estate prices might wipe out some gains for first-time homebuyers.”
What About Commercial Real Estate and REITs?
The repo rate cut isn’t just good for homebuyers. It can also benefit commercial real estate. Businesses can borrow at lower rates to invest in office spaces. Additionally, Real Estate Investment Trusts (REITs) may become more attractive to investors looking for stable returns in a lower-interest environment.
When Will Banks Reduce the EMI After RBI’s Rate Cut?
While the repo rate cut is positive, its impact depends on how quickly banks reduce their lending rates. Here’s what you need to know:
- Floating-rate home loans: Borrowers will benefit as EMIs reduce automatically or the loan tenure shortens.
- Fixed-rate home loans: Borrowers won’t see any change unless they refinance their loan.
- New loans: Borrowers can take advantage of lower interest rates right away.
However, if banks delay passing on the rate cut, borrowers may not see immediate relief. Also, rising property prices and inflation could affect the overall benefits.
Tips to Reduce Your Home Loan EMI
1. Refinance Your Loan: If your current interest rate is high, consider switching to a bank offering a lower rate. This can significantly reduce your EMI.
2. Increase Your EMI: If your income has increased, pay a higher EMI to reduce the loan tenure and save on interest.
3. Make Prepayments: Use bonuses or savings to make partial prepayments. This lowers interest by lowering the principal amount.
4. Negotiate with Your Bank: If your credit score has improved, ask your bank for a lower interest rate.
5. Opt for a Longer Tenure: If you’re struggling with high EMIs, extend your loan tenure to reduce the monthly burden (though this may increase the total interest paid).
The RBI’s repo rate cut is a welcome move for home loan borrowers. It can lead to lower EMIs, faster loan repayment, and more savings. However, the actual benefits depend on how quickly banks pass on the rate cut and how inflation affects property prices.
If you’re an existing borrower, explore refinancing options or consider making prepayments. For new homebuyers, this is a great time to take advantage of lower interest rates and tax benefits. Keep an eye on bank announcements and make informed decisions to maximize your savings.