Big savings for home loan borrowers as EMIs to fall significantly after RBI cuts repo rate by 50 bps
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Home loan borrowers: What should be your action plan now?
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 and other policy rates by 50 basis points (bps). The latest cut in the repo rate means that interest rate on home loans will come down which means that EMIs or tenure of home loan will also come down. It is worth noting that the RBI has reduced the repo rate by a total of 50 basis points in February and April 2025 and with the current cut of 50 bps, the repo rate has seen a fall of overall 100 basis points in just the first half of the year 2025.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.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.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, then with the latest repo rate cut, your home loan interest rate will come down further in the coming months.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, reducing your home loan tenure offers more benefits in the long term.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.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 current cut of 50 bps, there is still a scope of 25 bps reduction in coming months.
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