Home Loan EMIs to Drop as RBI Cuts Repo Rate by 50 bps; Borrowers to Save Lakhs in Interest

With the RBI’s aggressive 100 bps rate cut in 2025 and a shift in monetary stance, borrowers can now expect significant relief in EMIs and overall interest costs.

In a move set to boost consumer sentiment and support credit demand, the Reserve Bank of India (RBI) has cut the repo rate by 50 basis points (bps) during its latest monetary policy review. This marks the second 50 bps cut in 2025, following a similar reduction earlier in February, bringing the total repo rate cut to 100 bps in the first half of the year.

The central bank also announced a 100 bps reduction in the Cash Reserve Ratio (CRR) from 4% to 3%, increasing liquidity in the banking system. With this double relief, banks are expected to pass on the benefit to home loan borrowers through reduced lending rates.

What This Means for Borrowers

The reduction in the repo rate, the rate at which RBI lends to commercial banks—lowers borrowing costs. As banks reduce their External Benchmark Linked Rates (EBLRs) in response, home loan EMIs are expected to fall, offering immediate benefits to borrowers.

Here’s how this affects a typical borrower:

• Loan Amount: ₹50 lakh
• Old Interest Rate: 8.5%
• New Interest Rate: 7.5%
• Original Tenure: 20 years

Option 1: Lower EMI, Same Tenure

• Old EMI: ₹43,391
• New EMI: ₹40,280
• Monthly Savings: ₹3,111
• Total Interest Savings Over 20 Years: ₹7.47 lakh

Option 2: Same EMI, Shorter Tenure

• New Tenure: ~17 years
• Interest Savings: ₹15.44 lakh

This flexibility allows borrowers to choose what suits their financial goals—either better cash flow or faster loan repayment.

Broader Impact and Economic Context

The RBI’s move also comes amid muted credit growth expectations for FY26. As per an SBI Research report, bank credit growth as of May 16, 2025, stood at 9.8%, significantly lower than 19.5% in the previous year. Meanwhile, bank deposits surged by ₹3.06 lakh crore during the April–May period, while credit fell by ₹15,676 crore.

This repo rate cut is designed to stimulate credit demand, especially in sectors like housing, where affordability is a concern due to rising property prices.

Variations in Benefits Across Borrowers

Not all borrowers will experience the same level of benefit immediately. Those with loans linked to older interest rate regimes such as MCLR (Marginal Cost of Funds Based Lending Rate), base rate, or BPLR (Benchmark Prime Lending Rate) may face delays in rate transmission. Borrowers linked to repo-linked EBLRs are likely to see quicker and more transparent benefits.

Monetary Policy Outlook

The RBI also changed its policy stance from “accommodative” to “neutral”, indicating a more cautious approach going forward. While the central bank has already delivered a 100 bps cut this year, further rate reductions will be data-dependent, based on inflation trends and economic growth.

According to financial planners, reducing the loan tenure while keeping the EMI constant is often the smarter choice in the long term. This strategy leads to significantly higher interest savings and helps borrowers become debt-free faster.

For instance, choosing the same EMI after a 100 bps interest rate cut can help close a 20-year loan in just 17 years, freeing up finances for other goals.

The RBI’s aggressive rate cut strategy in early 2025 brings substantial relief to home loan borrowers. With banks expected to reduce lending rates further, now is a good time to revisit your loan structure and choose a repayment option that maximizes long-term savings.