Home loan EMIs set to fall after RBI rate cut: Tips to maximise savings

Home loan borrowers could soon see some relief, with the Reserve Bank of India cutting the repo rate by 25 basis points to 6 per cent. This is the second cut in recent months—after February’s move from 6.5 per cent to 6.25 per cent.

 

With the latest decision, EMIs are expected to come down, especially for those with repo-linked home loans.

 

“The lowest rates we’re currently seeing are between 8.10 and 8.35 per cent. However, the lowest rates are usually for prime borrowers with credit scores above 750 or for refinance cases,” said Adhil Shetty, CEO of Bankbazaar.com.

 

 

What it means for borrowers

 

— Lower repo rate can lead to reduced EMIs for those with repo-linked home loans  

— Borrowers paying more than 50 basis points above the current market rate may benefit from refinancing  

— Floating rate borrowers with older loans still linked to MCLR or base rate may not see an immediate drop  

— Only repo-linked loans pass on rate changes quickly and in full  

 

“Despite six years since repo-linking began, only 50 per cent of floating rate loans with public sector banks are on repo-based pricing. Around 2 per cent are still on base rate,” said Shetty. “Borrowers should check their loan type and consider shifting to a repo-linked home loan if they can save on interest.”

 

Why this cycle is different

 

Arsh Mogre, economist at PL Capital, said the current rate environment is supportive for credit transmission.

 

“With over 60 per cent of bank loans now linked to the External Benchmark Lending Rate, mainly the repo, this cut will be passed through more directly and quickly,” said Mogre. “The real policy rate is now around 2.4 per cent, and possibly 2 per cent looking ahead. This gives the RBI space for another 75–100 basis points of easing, which could bring the repo down to 5.0–5.25 per cent by the end of FY25.”

 

Mogre said this could bring down home loan rates by 100–125 basis points over the course of the cycle, creating meaningful savings for borrowers.

 

“If you have a ₹50 lakh loan at 10 per cent for 20 years, your EMI is ₹48,251. At 8 per cent, it falls to ₹43,391—a monthly difference of nearly ₹4,900 or ₹11.7 lakh over the tenure,” he said.

 

Not everyone may benefit immediately

 

Some experts remain cautious about how soon the benefits will reach borrowers.

 

“Banks haven’t fully passed on earlier rate cuts due to higher funding costs, pressure on margins, and risk concerns,” said Anuj Puri, chairman of ANAROCK Group.

 

“If they do pass on the latest two cuts, it would be helpful for homebuyers, especially those in the affordable housing segment. Many first-time buyers who’ve been on the fence may finally act if rates drop,” he added.

 

What borrowers can consider now

 

Mogre suggested five options for borrowers:

 

1. Wait a few months before locking rates – repo cuts take 1–2 months to show up in EBLR-linked loans. Those planning fresh loans may benefit from waiting till late 2025, when cumulative cuts are more fully priced in  

2. Switch to EBLR if still on MCLR or base rate – MCLR-linked loans transmit slowly. Over FY19–24, EBLR passed on 85–95 per cent of rate cuts, while MCLR managed only 65–70 per cent  

3. Refinance fixed-rate loans – fixed-rate loans, especially from NBFCs or HFCs, are often priced at 9.5–10 per cent. If penalties are low, moving to floating-rate loans may bring down outgo  

  4. Use lower EMIs to boost eligibility – a 100 basis point drop in interest rates can increase loan eligibility by 5–7 per cent, allowing buyers in high-cost cities to afford bigger homes or top-up loans  

  5. Consider prepaying – if the rate cut brings down EMIs, use the savings to reduce the loan principal or invest elsewhere instead of increasing spending  

 

“Home loan borrowers should keep expectations realistic,” said Puri. “Even if EMIs fall, the priority should be to pay down the loan faster or put the savings to better use.”