Published: June 7, 2025 | By: Financial Insights Team
On June 6, 2025, RBI Slashes Repo Rate to 5.5%!, the Reserve Bank of India announced a 50 basis points (bps) cut in the repo rate, at 5.5%, after announcing two earlier cuts of 25 bps each in February and April 2025, altogether, cutting the repo rate this year by 100 bps. In all likelihood, a welcome respite for home loan borrowers, the lower repo rate means reduced Equated Monthly Installments (EMIs). But how much will your EMI amount come down, and what elements go into your savings? Let’s explore the fine print with some examples and insight from experts!
Understanding RBI Slashes Repo Rate to 5.5%!
Reserve Bank of India (RBI)
The repo rate is the one at which the Reserve Bank of India (RBI) advances loans to the commercials banks. When the repo rate falls, it means that the banks will now be paying a lower amount of interest when borrowing money from the RBI, which typically leads to the banks also using these savings to lower the interest on loans they give out – including home loans. Most home loans in India are pegged to the repo rate – often through the EBLR (external benchmark-linked lending rates), so when the RBI lowers the repo rate, this will immediately affect borrowers, particularly for those who have floating rate loans. A cut of 50 bps to 5.5% will result in a fall in home loan interest rates and reduce the cost of borrowing money to purchase a house, which should help stimulate buying activity in the real estate market.
How Much Will Your Home Loan EMI Drop?
The reduction in EMI depends on the loan amount, tenure, and the extent to which banks pass on the rate cut. Below are some calculations based on a 50 bps reduction in interest rates, assuming banks fully transmit the benefit:
| Loan Amount | Tenure | Interest Rate (Before) | EMI (Before) | Interest Rate (After) | EMI (After) | Monthly Savings | Annual Savings |
|---|---|---|---|---|---|---|---|
| ₹30 lakh | 20 years | 8.5% | ₹26,035 | 8.0% | ₹25,093 | ₹942 | ₹11,304 |
| ₹50 lakh | 20 years | 8.5% | ₹43,391 | 8.0% | ₹41,822 | ₹1,569 | ₹18,828 |
| ₹80 lakh | 20 years | 8.5% | ₹69,426 | 8.0% | ₹66,915 | ₹2,511 | ₹30,132 |
Source: Calculations based on standard EMI formulas, assuming full transmission of the 50 bps rate cut.
Example Breakdown :
Consider an example of a home loan for ₹50 lakh with a 20-year tenure at 8.5% rate of interest. The EMI would then be about ₹43,391. After a 50 bps reduction in the interest rate, if the interest rate was decreased to 8.0%, the EMI would be approximately ₹41,822. There would be a monthly net reduction of ₹1,569, which results to an annual interest savings of ₹18,828. These Bank savings could really add up!
Furthermore over the loan tenure, you could expect an approximate interest savings of ₹3.76 lakh.
Impact of Aggregate 100 bps Reduction in 2025 :
Thinking about the aggregate 100 bps reduction in 2025 (a reduction of 25 bps in February, a reduction of 25 bps in April and a reduction of 50 bps in June), there could be additional savings.
For example, a ₹50 lakh loan for 20 years, and given a 1% rate reduction ( e.g. from 8.5% to 7.5% ), will see a monthly reduction in the EMI of about ₹3,111, or ₹37,332 annually, and over ₹7.46 lakh in interest saved for the loan.
Factors Affecting EMI Reduction
- Loan Type: Only floating-rate loans linked to the repo rate (EBLR) will see a reduction in EMI immediately. Fixed-rate loans will remain unaffected.
- Bank Policies: Banks may not pass on the full 50 bps reduction at first due to funding costs or pressures on margin. In the past, some banks have taken time to pass on rate reductions.
- Reset Period: EMI reductions for existing borrowers depend on the type of reset period the loan has (absolute – say quarterly, or, semi annually) on payment terms. Repo linked loans are adjusted much quicker than MCLR-linked loans.
- Credit Profile: Borrowers with strong credit profiles (>750) will receive lower rates (say sub-8%) and, much quicker, especially when refinancing.
Strategies to Maximize Savings
To capitalize on the recent repo rate cut, follow these expert recommendations:
- Keep the EMI the same and reduce the tenure: While this means you are keeping your EMI the same, you are shortening your loan while saving on total interest payouts. For example, an undeniably large loan of ₹50 lakh could be reduced by 50 bps and cut down your loan tenure by 18 months, while saving ₹8 lakh in interest paid.
- Refinance your loan: If your loan is carrying an unnecessarily high rate (for example, > 8.5%), you can easily switch to a repo linked loan at rates of 7.85% – 8.0% and save thousands of ₹ in your monthly repayments. Before you take action, make sure you check the processing fees associated with refinanced loans.
- Make Part-Prepayments: Take any savings from lower EMIs or bonuses and make part-prepayments on your home loan. Part-prepayments help reduce your home loan principle and any future interest, hence saving you potentially lakhs in interest payments over the long, often wide, term of your home loan. Even small prepayments as little as ₹50,000 a year can save you considerable amounts.
- Switch to a Loan with EBLR: If your loan is MCLR based or link to a base rate, you might consider switching to a loan which is pegged to the repo rate, where interest rate cuts are going to take place far quicker down the line.
Wider Effects on Real Estate
The repo rate cut is a blessing for the real estate markets. Reduced EMIs improve the affordability of homes, thus creating more demand for the product, particularly in affordable and mid-income segments. Gaurav Gupta the Secretary of CREDAI remarks that these actions can improve buyer sentiment while also increasing demand in complementary sectors such as construction and home furnishing.However, property values may also rise in certain markets, such as NCR, where real estate prices may rise 30% in 2024, canceling some of the EMIs savings.
FAQs
How soon will my EMI decrease after the repo rate cut?Will fixed-rate loan borrowers benefit?How can I calculate my EMI savings?
FAQs
How soon will my EMI decrease after the repo rate cut?Will fixed-rate loan borrowers benefit?How can I calculate my EMI savings?
Conclusion
The RBI’s 50 bps repo rate cut to 5.5% in June 2025, combined with earlier cuts, offers significant relief for home loan borrowers. Monthly EMI savings could range from ₹942 for a ₹30 lakh loan to ₹2,511 for an ₹80 lakh loan, with cumulative savings reaching lakhs over the loan tenure. To maximize benefits, borrowers should consider refinancing, prepayments, or tenure reduction. Stay proactive by monitoring bank announcements and consulting financial advisors to optimize your home loan strategy.
Disclaimer: EMI calculations are illustrative and depend on banks passing on the full rate cut. Consult your lender for exact savings.
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