Home loan interest rates are likely to drop more after the Reserve Bank of India (RBI), headed by Governor Sanjay Malhotra, announced a 0.25% cut in the repo rate, bringing it down to 6%. This exciting news is part of the first monetary policy for the financial year 2025-26, and it could help borrowers with home loans. Many experts believe rates might go below 8% per year.
Banks often don’t pass on all the benefits of these cuts to customers, so it will be interesting to see how major banks respond this time. If banks reduce their rates by another 0.5%, it would provide significant relief for home loan borrowers struggling with high interest rates.
HDFC Bank and Axis Bank have previously confirmed that they passed on the full 0.25% benefit to their current customers. According to RBI rules, banks must check their interest rates at least once every three months, but when they change rates can differ depending on the loan terms. New borrowers may also start enjoying lower rates soon.
So, how will this latest repo rate cut affect your home loan EMI (Equated Monthly Installment)? Let’s say you have a ₹50 lakh home loan with a 20-year term at a 9% interest rate—the EMI would be around ₹44,986. If banks apply a 0.5% reduction, your new EMI would drop to about ₹43,391, saving you ₹1,595 every month, which adds up to ₹19,140 a year. Over the 20-year loan, you could save more than ₹3.8 lakh!
Adhil Shetty, CEO of Bankbazaar.com, pointed out that home loan borrowers with floating interest rates tied to the RBI’s repo rate can expect their EMIs to go down if the RBI cuts rates by 0.25%. While banks may take their time passing on the full benefit, some relief is expected.
For loans approved after October 1, 2019, most floating-rate loans are linked to an external benchmark—typically the repo rate. The effective interest rate for home loans includes three parts: the repo rate, a spread set by the bank, and a credit risk premium that depends on the borrower’s credit score. Prime borrowers (those with a credit score over 750) and those refinancing their loans can benefit the most from these changes. If you’ve been paying considerably higher rates, Shetty advises you to consider refinancing your loan to take advantage of the lower rates.
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