Loan EMIs to get Cheaper as RBI cuts Repo Rate sgain | See the benefit

For middle-class families with home loans, 2025 is shaping up to be a year of potential savings. Following an initial reduction earlier this year, the Reserve Bank of India (RBI) has just announced another welcome cut in its key lending rate, known as the repo rate. This means that the interest you pay on your home loan, especially if you have a floating rate loan, is likely to decrease in the coming weeks as banks start passing on this benefit.

What does this mean for your monthly budget?

Think of it this way: the RBI is making it cheaper for banks to borrow money. The hope is that they will, in turn, make it cheaper for you to borrow money for your home. This latest cut of 0.25% (or 25 basis points) follows a similar cut earlier in the year, totaling a significant 0.50% reduction in the repo rate so far.

Experts explain the potential savings: 

If you have a ₹30 lakh home loan with an original interest rate of 9% for 20 years, these two rate cuts could potentially save you around ₹1,176 on your monthly EMI. Over the entire loan tenure, this could translate to a substantial saving of approximately ₹2.82 lakh! The savings will be even higher for larger loan amounts (see the table below for examples).

Will interest rates fall further?

There's a good chance they might! The RBI's main goal is to keep inflation under control while also encouraging economic growth. Currently, inflation seems to be within a comfortable range. Experts at the State Bank of India suggest that we could see more rate cuts in the coming months.

Adding to this, recent economic developments, like the new tariffs imposed by the US, could potentially slow down India's economic growth. To counter this, the RBI might be inclined to further reduce interest rates to make borrowing even more affordable. HSBC, a global financial institution, also predicts further rate cuts in the near future.

What should you do now?

For those of you with home loans, especially floating rate ones, keep an eye on your loan statements. Your bank should ideally pass on the benefit of these rate cuts, which will result in lower EMIs.

Adhil Shetty, CEO of Bankbazaar.com, advises that if you are paying a significantly higher interest rate compared to what's currently being offered (more than 0.5% higher), it might be a good time to consider refinancing your loan. This means switching to a new loan with a lower interest rate.

Important for older loan holders:

If your home loan is still linked to older systems like MCLR (Marginal Cost of Lending Rate) or the base rate, you might not automatically see the benefit of these repo rate cuts. Mr. Shetty strongly suggests switching to a repo-linked loan (EBLR). While there might be some administrative charges involved, the potential savings in interest can be substantial in the long run. Banks are mandated to adjust interest rates on EBLR-linked loans at least once every three months, so you should see the impact of the recent rate cuts relatively soon.

In simple terms:

• Two recent RBI rate cuts mean your home loan EMIs are likely to go down.
• The amount you save depends on your loan size and original interest rate.
• More rate cuts could be on the horizon, leading to further savings.
• If you have an older loan type (not linked to EBLR), consider switching to benefit fully from lower rates.
• Keep an eye on your bank's communication regarding the revised interest rates.

This is a positive development for middle-class families managing their finances. By understanding how these rate cuts work and taking the necessary steps, you can potentially save a significant amount of money on your home loan and ease your monthly budget.

Adding to the positive economic developments, there's significant news on the horizon for central government employees. The 8th Pay Commission is indeed on its way, promising a revision in salaries, allowances, and pensions.  

While the exact details are still being formulated, the government has already approved the formation of this commission. Typically, Pay Commissions are implemented every 10 years, and the 8th Pay Commission is expected to come into effect from January 1, 2026.  

This development is set to benefit a large number of individuals, including approximately 50 lakh central government employees and 65 lakh pensioners.