Explained: How Does a Repo Rate Cut of 25 bps Make Home Loans Cheaper

During Budget 2025, Finance minister Nirmala Sitharaman gave relief to taxpayers by announcing 0% income tax for salaried individuals earning up to ₹12 lakh, following which RBI also slashed the repo rate by 25 basis points at 6.25%. The move will itself stem growth in the economy bringing a much-needed sigh of relief for home loan borrowers.

Notably, the central bank hiked the interest rates by 250 basis points between May 2022 to February 2023, bringing up the repo rate from 4% to 6.5%.

Atul Monga, co-founder and CEO, BASIC Home Loan, “Both existing and new borrowers under floating rate loans stand to benefit from lower interest rates, improving loan affordability and accessibility. Fixed-rate loan borrowers will remain unaffected by the rate cut. That said, banks and housing finance companies may take some time to fully transmit the benefits of this rate cut to borrowers, depending on their policies and rate cycle.”

How will a rate cut affect your EMIs?

If you buy a property worth ₹1 crore by taking a loan of ₹80 lakh for a 20-year period, you will have to shell out an EMI of ₹71,978. However, if your interest rate drops to 8.75%, your monthly EMI will be ₹70,697. Though the reduction might not seem significant, the total interest on which you will be paying your loan will decrease from ₹92.74 lakh to ₹89.67 lakh.

For home loan borrowers, a reduction in repo rate means lower rate of interest and the leeway to afford an expensive property. Interestingly, salaried individuals earning up to ₹12 lakh can save up to ₹80,000 in taxes on an annual basis.

Can rate cuts boost housing demand?

If borrowing costs remain low this will in turn boost demand for home loans thus spurring growth in the real estate market by making housing more affordable. The move will in turn lead to increased sales and new projects launched.

Shishir Baijal, Chairman and Managing Director, Knight Frank India, a real estate consultant said, “We hope interest rate cuts will be passed on to the consumer, and the home loan rates become more attractive, which combined with the earlier announced tax incentives spur residential demand across the different price brackets, but especially in the below ₹50 lakh category, which has seen a continued weakening of demand.”