RBI Repo Rate Cut: Loan EMIs Drop – Discover How Much You’ll Save!

RBI Repo Rate Cut: The repo rate was bled down by 25 basis points to 6.25% on Feb 7, numerously benefiting the home loan borrowers in the backdrop of the Budget 2025, where zero income tax for salaries up to ₹12 lakh was announced.

To note, under an SRF that raised the repo rate by a whole 250 basis points from May 2022 to February 2023, from 4% to 6.5%, this period put pressure on the shoulders of homebuyers and new homebuyers, who then had to either shell out a higher EMI or extend their home loan tenure.

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“Both existing and new borrowers under floating rate loans stand to benefit from lower interest rates, improving loan affordability and accessibility. Fixed-rate loan borrowers will remain unaffected by the rate cut. That said, banks and housing finance companies may take some time to fully transmit the benefits of this rate cut to borrowers, depending on their policies and rate cycle,” says Atul Monga, co-founder and CEO, BASIC Home Loan.

How will the rate cut impact your EMIs?

Supposing you had bought a property worth ₹1 crore and opted for an ₹8o lakh loan for a period of 20 years at an interest rate of 9%. You are, as of now, paying an EMI of ₹71,978. Should the interest rate vary to 8.75%, your EMI will be changed to ₹70,697. This may not look like much, but total interest payable on the loan now reduces from ₹92.74 lakh to ₹89.67 lakh.

For all the new buyers of a house, this means a reduced loan rate of interest and getting sighted for an increase in the price range of properties. One has also to note that the cut in the repo interest rate follows the announcement in Budget 2025 about the tax cut which would benefit a salaried person who earns up to ₹12 lakh. This would hence afford this class of buyers extra allowance to buy expensive property costing more than what was previously.

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If a man were to take a loan of ₹30 lakhs to purchase an apartment worth ₹50 lakhs, at an 8.75% interest rate and for a term of 20 years, he would pay an EMI of ₹26,511. At a 9% interest rate, he would be paying an EMI of ₹26,992.

Will a rate cut boost housing demand?

The increased demand for home loans in the market fueled by cheaper borrowing costs will spur the housing sector to grow, and this will bode well for buyers and developers, leading to higher sales and new project launches.

“We hope interest rate cuts will be passed on to the consumer, and the home loan rates become more attractive, which combined with the earlier announced tax incentives spur residential demand across the different price brackets, but especially in the below ₹50 lakh category, which has seen a continued weakening of demand,” says Shishir Baijal, Chairman and Managing Director, Knight Frank India, a real estate consultant.

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