RBI rate cut: Switching to repo-linked home loan may save you lakhs

RBI cuts repo rate to 5.50%. Borrowers with MCLR or base rate loans could save up to ₹8.5 lakh by switching to repo-linked loans, say experts

The Reserve Bank of India (RBI) on Friday cut the repo rate by 50 basis points to 5.50 per cent — the third such cut in 2025.

 

With this, floating-rate home loans linked to the repo rate may now offer cheaper EMIs, provided banks and non-banking finance companies (NBFCs) pass on the benefit to borrowers.

 

“This is positive news for home loan borrowers, especially those with floating-rate loans linked to the repo rate. Depending on their loan structure, they can expect either a reduction in EMIs or a shorter loan tenure,” said Manik Malik, CFO, BPTP.

 

What’s in it for existing borrowers?

 

Those whose loans are still linked to the base rate or marginal cost of funds-based lending rate (MCLR) may not automatically benefit from the policy change.

 

“Borrowers who are still servicing home loans linked to the base rate or MCLR should seriously consider switching to a repo-linked loan,” said Adhil Shetty, CEO of Bankbazaar.com. “This is especially relevant now, as the RBI has cut the repo rate for the third time in 2025—bringing it down to 5.50%.”

 

According to Shetty, repo-linked lending rates are more transparent and transmit policy changes faster than MCLR or base rate loans, which typically adjust with a lag.

 

Should you switch now?

 

Switching mid-loan cycle comes with both benefits and costs. The decision depends on factors such as remaining loan tenure, the difference in interest rates, and the charges involved.

 

“Borrowers must weigh the potential interest savings from the lower rate against the switching costs, which may include administrative charges, legal fees, and sometimes a nominal processing fee if transferring to another bank,” said Shetty.

 

Shalya Gupta, CEO of Credifin Limited, also pointed out that, “If your current lender isn’t passing on the benefit, it might be time to explore a balance transfer. This is a golden window to reduce your long-term interest burden and become debt-free faster.”

 

Cost-benefit trade-off

 

Shetty explains: Take the case of Rahul, a 34-year-old IT professional in Bengaluru. In 2022, he took a ₹60 lakh home loan for a 20-year tenure at an interest rate of 8.5 per cent. Like many borrowers then, his loan was linked to the MCLR (marginal cost of funds-based lending rate).

 

Fast forward to June 2025. After three repo rate cuts this year, totalling 100 basis points, many banks are now offering repo-linked home loans at around 7.5 per cent. Rahul is now considering a switch.

 

If he continues with his current loan, his monthly EMI remains ₹52,006. Over 20 years, that adds up to nearly ₹124.81 lakh, including ₹64.81 lakh in interest.

 

But if he shifts to a repo-linked loan at 7.5 per cent, his EMI would drop to ₹48,280. Over the remaining tenure, he’d pay about ₹55.87 lakh in interest, taking the total repayment to ₹115.87 lakh.

 

That’s a saving of ₹8.94 lakh over the full loan period.

 

Even after accounting for switching costs—anywhere between ₹25,000 and ₹35,000—Rahul still stands to save around ₹8.5 lakh. 

 

For him, and thousands of others in similar positions, that could mean becoming debt-free several years earlier or repurposing the savings toward investments, children's education, or a retirement fund.

 

What if rates rise again?

 

Rate cycles are unpredictable, and inflationary pressures could lead to future hikes. Still, repo-linked borrowers benefit from quicker downward revisions.

 

To cushion against future increases, experts advise:

 

Prepaying part of the loan while rates are low

Keeping a buffer in monthly budgets

Using EMI savings to reduce the principal faster

 

“The RBI's 50 bps rate cut provides relief but stretches a longer-term view,” said LC Mittal, director at Motia Builders Group. “A ₹75 lakh home loan could see an EMI drop of nearly ₹2,940 per month, but any gains can be eroded if inflation pressures return.”

 

What about fixed-rate borrowers?

 

Fixed-rate home loan customers won’t benefit from policy cuts unless they refinance.

 

“If you’re on a fixed-rate loan from a branded housing developer, you’ll see no change unless you pay to switch,” said Mittal. “But if you can use your EMI savings wisely—by accelerating repayments—you could knock three years off a 20-year loan and save up to ₹14 lakh in interest.”

 

Keshav Mangla, GM Business Development at Forteasia Realty Pvt Ltd, added that fixed-rate borrowers in the New Tax Regime also miss out on tax deductions on home loans. He advised those with good credit scores to negotiate better terms or make prepayments.

 

“There’s also room for more repo cuts in 25–50 bps steps, which could make housing finance more accessible through banks,” said Mangla.