On April 9, 2025, the Reserve Bank of India (RBI) cut the repo rate by 25 basis points, bringing it down to 6.00%. This decision is great news for those who are repaying or planning to take a home loan. The cut in repo rate could lead to a drop in monthly EMIs (Equated Monthly Installments) if your bank passes on the rate benefit.
📉 What Is Repo Rate and Why Does It Affect Home Loans?
The repo rate is the interest rate at which RBI lends short-term funds to banks. When the repo rate goes down, banks get money at a cheaper rate. This means they can offer loans to customers—like home loans—at lower interest rates.
Since October 2019, most floating-rate home loans are directly linked to the repo rate. So whenever the RBI changes this rate, it affects your home loan EMI.
📊 Home Loan EMI Drop on Rs.30 Lakh Loan: Full Calculation
Let’s take an example to understand the savings clearly. Suppose you have a Rs.30 lakh home loan for 20 years.
✅ Before Rate Cut (At 9% Interest):
- EMI: Rs.26,992 per month
- Total Interest in 20 Years: Rs.34,78,027
- Total Payment (Principal + Interest): Rs.64,78,027
✅ After 25 bps Rate Cut (At 8.75% Interest):
- EMI: Rs.26,511 per month
- Total Interest in 20 Years: Rs.33,62,717
- Total Payment: Rs.63,62,717
💰 Total Savings in 20 Years:
- Monthly Saving: Rs.481
- Total Saving: Rs.1,15,310
🔁 Should You Reduce EMI or Loan Tenure?
Whenever interest rates drop, you get two main options from your bank:
1. Keep EMI Same, Reduce Tenure
- You continue paying Rs.26,992 EMI
- Interest drops from 9% to 8.75%
- Loan finishes 11 months earlier (from 240 EMIs to 229)
- Total interest saved: Rs.2,96,912
- Benefit: Loan is closed faster, and interest paid is lower
2. Reduce EMI, Keep Tenure Same
- EMI drops to Rs.26,511
- You save Rs.481 per month
- Total saving: Rs.1,15,310 over 20 years
- Benefit: Lower monthly outflow, more flexibility in monthly budget
👉 Tip: If your monthly budget allows, always choose to reduce tenure instead of EMI. This saves more interest in the long term.
🏦 Will Banks Pass on the Rate Cut?
Not always. Even though your loan is linked to the repo rate, banks take some time to adjust their rates. It’s best to talk to your bank and ask for the updated interest rate.
Banks may not reduce rates immediately or by the full 25 basis points. The final reduction in your EMI depends on how your bank reacts to RBI’s announcement.
📅 How Soon Will EMI Changes Reflect in Your Loan?
Usually, banks revise the loan interest rate every three months. So even if the RBI has cut the repo rate now, your EMI may reduce only in the next reset cycle.
📈 Why RBI Cut the Repo Rate Again in April 2025
- Slowdown in global economy
- Falling exports and weak demand
- Need to support Indian businesses and homebuyers
- Inflation under control, giving room for rate cuts
This is the second time this year that the RBI has cut the repo rate. Earlier in February 2025, RBI reduced the rate by 25 basis points as well.
💡 Final Takeaway for Homebuyers
If you already have a home loan:
- Contact your bank for revised rates
- Choose between reducing EMI or tenure
- Use online EMI calculators to compare options
If you’re planning to take a home loan:
- Compare lenders for the lowest rates
- Look for banks that pass on repo rate cuts quickly
- Understand all terms before signing
With repo rate now at 6.00%, this is a good time to review your home loan or even balance transfer to a lower interest bank if your current bank does not reduce the rate.
