Home Loan Relief: EMIs Falls by 1.8% on 20-Year Loans, RBI Cuts Repo Rate by 25 bps
The Union Budget 2025 gave the middle class a big relief with tax cuts. Now, there is another good news! The RBI cut the repo rates by 25 bps at its monetary policy meeting on 7 February 2025. This means that EMIs on home, auto, and personal loans would go lower, thus making all forms of borrowing cheaper for each one of us! This rate cut has come after nearly five years
When the interest rate falls by 0.25%, in this situation home loan borrowers have two choices: either reduce their monthly EMIs or reduce their loan tenure. Choosing a shorter tenure helps clear the loan faster.
If someone takes a home loan of Rs.50 lakh for 30 years at an 8.75% interest rate, their EMI would be Rs.39,335. If the bank reduces the interest rate by 0.25% (25 bps), the new rate will be 8.5%. This small change will lower the EMI to Rs.38,446, saving the borrower Rs.889 per month.
Suppose a borrower currently pays a 9.55% interest rate on a Rs.50 lakh home loan for 30 years. After the 25 bps rate cut, their EMI will reduce from Rs.42,225 to Rs.41,315 per month. This means they will save Rs.910 every month.
Here’s how a 25 bps rate cut affects Rs.50 lakh home loan taken for 30 years:
| Lender | Loan Amount | Loan Tenure | Current | EMI | New Interest Rate (.25bps) | Revised EMI |
| Interest Rate | ||||||
| Bank 1 | 50lacs | 30yrs | 8.75% | 39335 | 8.50% | 38446 |
| Bank 2 | 50lacs | 30yrs | 9.55% | 42225 | 9.30% | 41315 |
RBI Governor Sanjay Malhotra, in his first monetary policy review, announced that after carefully analyzing the economy and financial conditions, the central bank’s rate-setting panel unanimously decided to cut the repo rate. This move is expected to encourage banks to lower loan interest rates for borrowers by a similar amount or even more.
The central bank has reduced the Standing Deposit Facility (SDF) rate to 6%. It has also lowered the Marginal Standing Facility (MSF) rate and the Bank Rate from 6.75% to 6.5%. Additionally, the Monetary Policy Committee (MPC) has decided to maintain a neutral stance, focusing on keeping inflation under control while also supporting economic growth, according to the governor.
It’s to be seen how banks would respond to this rate cut by RBI and how soon they will pass on the benefit down to home and personal loan borrowings. Earlier, it has been a mindset among banks not to keep reducing the loan rates and hence not necessarily act until the government and RBI pressure them for the same of giving the borrowers the full benefit of the reduced rate cuts.
