Does RBI’s Repo Rate Change Affect Your Home Loan Interest Rate?
July 21, 2025

On June 6, 2025, the Reserve Bank of India (RBI) took a decisive step to stimulate economic growth by cutting the repo rate by 50 basis points, bringing it down to 5.50%. This move, driven by slow economic growth and US Government's imposition of 26% tariff on imports, is expected to have far-reaching effects on the housing market. This is the third time the RBI has cut the repo rate - the first rate cut happening in February 2025.
While borrowers may rejoice at the prospect of lower home loan interest rates, the real question is: how soon will banks pass on the benefits, and what does this mean for prospective homebuyers and existing homeowners? Let’s take a deeper look at the implications of this rate cut.
Understanding the Repo Rate and Its Influence on Home Loans
The repo rate is the rate at which the RBI lends money to commercial banks. When this rate is reduced, banks can borrow funds at a lower cost, which often leads to reduced interest rates on loans, including home loans. However, the extent and timing of this transmission vary based on a range of factors, including liquidity conditions, banks’ financial health, and credit demand.
How Will the Repo Rate Cut Impact Home Loan Borrowers?
1. Lower Interest Rates on New Home Loans
Banks and housing finance companies (HFCs) are likely to pass on the benefit of the reduced repo rate to borrowers, but the transmission of rate cuts is rarely immediate. Some banks may lower their lending rates within weeks, while others may take months, especially if they are MCLR-linked loans. This means potential homebuyers must stay vigilant and compare interest rates across lenders before taking out a home loan.
2. Reduced EMIs for Existing Floating-Rate Borrowers
For those with home loans linked to an external benchmark rate (like the RBI’s repo rate), their EMIs could decrease. For example, if the home loan interest rate drops from 8.75% to 8.50%, the EMI on a ₹50 lakh loan over 20 years will reduce from ₹44,186 to ₹43,391. However, the pace at which lenders reflect the reduction varies, and not all borrowers may see an immediate change in their monthly payments.
3. Impact on Fixed-Rate Home Loans
Fixed-rate home loans remain unaffected by repo rate fluctuations. Borrowers locked into fixed-rate contracts will not experience immediate relief, but those considering refinancing may find it an opportune time to explore lower rates.
The Real Impact: Will Banks Pass on the Benefit?
Historically, banks have been slow to pass on the benefits of repo rate cuts to customers. While the RBI has mandated external benchmark-linked lending rates (EBLRs) to improve transparency, banks often adjust their loan pricing strategies based on their own funding costs and business goals. Therefore, while rate cuts are beneficial, borrowers should closely monitor their lenders’ announcements and explore refinancing options when necessary.
Should You Consider Refinancing Your Home Loan?
With interest rates trending downward, refinancing—or balance transfer of home loans—can be an effective strategy for cost savings. Borrowers with existing loans at higher rates can approach other lenders offering competitive rates. However, refinancing comes with additional costs such as processing fees and administrative charges, so it’s important to evaluate the overall savings before making a switch.
Final Thoughts
The recent repo rate cut is a positive development for home loan borrowers, making homeownership more affordable and reducing the cost of borrowing. However, the onus remains on banks to transmit these benefits in a timely manner. Existing borrowers should stay informed about potential rate reductions, while new borrowers should capitalize on lower rates to secure better loan terms. As always, keeping an eye on market trends and acting strategically can help borrowers make the most of favourable economic conditions.
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FAQs
1. What is the repo rate as of February 2025?
The RBI has reduced the repo rate to 5.50% as of June 9, 2025.
2. Will my existing home loan EMI reduce immediately?
If you have a floating-rate loan linked to the repo rate, your EMI may decrease in the coming months, depending on your lender’s policy.
3. Does the repo rate cut affect fixed-rate home loans?
No, fixed-rate loans remain unaffected by repo rate changes. However, you may get better rates if you refinance.
4. How much can I save on my home loan EMI?
If the interest rate drops from 8.75% to 8.50%, a ₹50 lakh loan over 20 years could see an EMI reduction of around ₹795 per month.
5. Should I refinance my home loan after this rate cut?
If your existing loan is at a significantly higher rate, refinancing to a lower interest rate could save you a substantial amount in the long run.
6. How long does it take for banks to pass on the rate cut?
It varies by lender, but typically, banks take a few weeks to a few months to adjust lending rates.
7. Does a repo rate cut always lead to lower home loan rates?
While it often does, banks also consider other factors like their cost of funds before adjusting rates.
8. Will this rate cut make home loans more affordable for first-time buyers?
Yes, lower interest rates reduce the cost of borrowing, making home loans more accessible for first-time buyers.
9. What should I do if my lender does not reduce my loan rate?
You can negotiate with your bank for a lower rate or consider transferring your loan to a different lender offering better terms.
10. Will home loan interest rates go up in the future?
Interest rates fluctuate based on economic conditions. If inflation rises, the RBI may increase rates again in the future.
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