The Reserve Bank of India (RBI) has slashed the repo rate by 50 basis points (bps), bringing it down to 5.50% as announced on 6 June 2025. This move brings a wave of relief for home loan borrowers across India, especially those repaying long-term loans. While this decision directly affects banks, it also helps individual borrowers, as it lowers their interest burden.
Let’s break down what this decision means for your monthly EMIs and how much money you can save, especially if you have a home loan of Rs. 30 lakh.
Understanding the RBI Repo Rate and Its Impact on Home Loan EMI
The repo rate is the rate at which the RBI lends money to commercial banks for short durations. When the RBI reduces this rate, banks can borrow money at a lower cost. Since October 2019, all floating-rate home loans are linked to external benchmarks, such as the repo rate. That means any change in the repo rate directly impacts your home loan interest rate.
So, when the RBI reduces the repo rate, it gives commercial banks a chance to lower their lending rates. In most cases, this means lower EMIs for people with home loans, personal loans, and car loans.
What Happens to a Rs. 30 Lakh Home Loan After Rate Cut?
Let’s take an example of someone who took a home loan of Rs. 30 lakh for 20 years. Here’s how the EMI and total interest paid change before and after the repo rate cut.
📉 Before Rate Cut: Interest Rate @ 8.75%
- Monthly EMI: Rs. 26,511
- Total Interest Over 20 Years: Rs. 33,62,717
- Total Payment to Bank: Rs. 63,62,717
📉 After Rate Cut: Interest Rate @ 8.25%
- Monthly EMI: Rs. 25,562
- Total Interest Over 20 Years: Rs. 31,34,873
- Total Payment to Bank: Rs. 61,34,873
💸 Total Savings Over 20 Years: Rs. 2,27,844
This means your EMI reduces by Rs. 949 every month. Over 240 EMIs (20 years), you save almost Rs. 2.28 lakh. That’s a significant saving for any salaried or middle-class home buyer.
What If You Keep Paying the Same EMI?
Instead of reducing the monthly EMI, if you choose to keep the EMI the same and reduce your loan tenure, you can finish your loan earlier and save more on total interest.
Let’s say you continue paying Rs. 26,511 every month even after the interest drops to 8.25%. In this case:
- Your loan term will reduce from 240 months to 230 months.
- You will finish repaying the loan 10 months earlier.
- You also save on 10 months’ interest payments.
This option is ideal if you want to clear your loan faster rather than saving a small amount monthly.
What Should Borrowers Do Now?
If you already have a floating-rate home loan, your bank will likely revise your interest rate in line with the repo rate cut. However, banks may take a few weeks to officially announce new rates and adjust them for each customer.
Here’s what you can do:
- Check with your bank for the new interest rate applicable to you.
- Compare with other lenders. If another bank is offering a lower rate, you may consider a balance transfer.
- Decide whether to reduce EMI or reduce tenure. Choose based on your financial goals.
Will All Banks Cut Interest Rates?
Not necessarily. While the RBI has cut the repo rate, each bank decides how much of this cut it wants to pass on to customers. Some banks may reduce rates by the full 50 bps, others might cut less, or delay the change. It also depends on each bank’s internal cost structure and strategy.
Still, because of the RBI’s rule linking floating-rate loans to external benchmarks, most banks will likely offer lower home loan rates in the coming weeks.
Why RBI Cut the Repo Rate
RBI’s decision to cut rates came amid signs of slowing demand in housing and auto sectors, and with inflation currently under control. Lower interest rates can boost demand for credit, which in turn supports economic growth.
With this cut, the repo rate stands at 5.50%, down from 6.00%. This is one of the steepest single cuts in recent times, reflecting RBI’s intention to support home buyers and revive consumption.
Benefits for New and Existing Home Buyers
New Home Buyers:
- Lower interest rates mean cheaper loans, making it a good time to buy.
- You can borrow more for the same EMI amount, increasing your budget.
Existing Borrowers:
- Lower EMI or shorter tenure means more savings.
- Those with floating-rate loans will benefit automatically.
- Fixed-rate borrowers may explore balance transfers to switch to better rates.
Key Takeaways for Home Loan Borrowers
- RBI has cut the repo rate by 50 basis points to 5.50%.
- EMI on a Rs. 30 lakh loan may drop by Rs. 949/month.
- You can save over Rs. 2.27 lakh in interest over 20 years.
- Opting to keep the same EMI helps close your loan faster.
- Talk to your bank to know your new rate and adjust your repayment plan accordingly.
Disclaimer: This article is for general information only. Actual savings may vary based on bank policies and your loan terms. Please consult your bank or financial advisor before making any decisions.
Source: Financial Express
