RBI governor Sanjay Malhotra announces 50bps repo rate cut: 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.
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.
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 R ..
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
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.
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.