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RBI Cuts Repo Rate by 0.25% to 5.25% — How Much Will Your Home Loan EMI Reduce?
On December 2025, the Reserve Bank of India (RBI) announced a significant 0.25% cut in the repo rate, bringing it down to 5.25%. This move aims to stimulate economic growth by facilitating cheaper borrowing costs for banks, which typically pass on these savings to consumers in the form of lower interest rates on loans.
For millions of homeowners and prospective home loan borrowers, the RBI’s decision translates into potential savings on monthly Equated Monthly Installments (EMIs). But how exactly does this rate cut impact your home loan repayments? How much will your EMI reduce, and what does this mean for your overall financial planning?
Understanding Repo Rate and Its Importance
The repo rate is the interest rate at which the Reserve Bank of India lends money to commercial banks against government securities. It serves as a benchmark for the country’s overall interest rates. When RBI reduces the repo rate, banks can borrow funds at a cheaper rate.
Consequently, banks tend to reduce interest rates for loans offered to consumers, especially floating-rate loans such as home loans. Thus, changes in the repo rate directly and indirectly influence your loan’s interest rate, affecting the EMI you pay monthly.
How Repo Rate Cuts Affect Home Loan Interest Rates
Most floating-rate home loans have their interest rates linked to the Monetary Policy Rate (MPR), which tracks the repo rate. When repo rates drop:
- Banks reduce their base lending rates or Marginal Cost of Funds based Lending Rate (MCLR)
- Housing loan interest rates decrease accordingly
- Borrowers benefit from reduced interest outgo and smaller EMIs
For borrowers with fixed-rate loans, the impact is limited unless they refinance or opt for a loan reset. However, most home loan borrowers in India avail floating rate loans tied to repo rate or MCLR.
What Is EMI and How Is It Calculated?
EMI or Equated Monthly Installment is the fixed amount you pay your lender every month to repay the principal and interest on your loan over a predetermined tenure.
The formula for calculating EMI is:
EMI = [P × r × (1+r)^n] / [(1+r)^n – 1]
Where:
P = Principal loan amount,
r = Monthly interest rate (annual rate/12/100),
n = Number of monthly installments (loan tenure in months)
This formula ensures that over the loan tenure, the borrower pays equal installments, combining interest and principal deductions.
Impact of 0.25% Repo Rate Cut on Home Loan EMIs — Detailed Analysis
Let’s consider an example of a ₹50,00,000 home loan with a tenure of 20 years:
| Scenario | Interest Rate (Annual) | Monthly EMI (₹) | Total Interest Payable (₹) |
|---|---|---|---|
| Before Repo Rate Cut | 7.00% | 38,880 | 43,31,545 |
| After Repo Rate Cut to 6.75% | 6.75% | 37,900 | 41,57,679 |
The above example shows a monthly saving of ₹980 in EMI and total interest savings of approximately ₹1,73,866 over 20 years, which can benefit the borrower significantly.
Table Showing EMI Changes for Different Loan Amounts (20-year tenure)
| Loan Amount (₹) | EMI @ 7.00% | EMI @ 6.75% | Monthly Savings (₹) |
|---|---|---|---|
| 10,00,000 | 7,776 | 7,580 | 196 |
| 25,00,000 | 19,440 | 18,950 | 490 |
| 50,00,000 | 38,880 | 37,900 | 980 |
| 1,00,00,000 | 77,760 | 75,800 | 1,960 |
How to Use the Interactive Home Loan EMI Calculator
TRY Home loan Advance Calculator
Below is an easy-to-use EMI Calculator. Enter your loan amount, loan tenure in years, old interest rate and new interest rate after the repo cut to see how your EMI and savings change.
FAQs on RBI Repo Rate Cut and Home Loan EMIs
1. How soon will banks reduce home loan interest rates after RBI cuts the repo rate?
Typically, banks review their lending rates following an RBI repo rate change within a few weeks to a month. However, the exact timing varies between banks and depends on their cost of funds and MCLR resets.
2. Will the repo rate cut reduce interest rates on fixed-rate home loans?
No, fixed-rate home loans have a fixed interest rate for the entire tenure, unaffected by repo rates. However, borrowers may consider refinancing if floating rates become more attractive.
3. How can I check if my existing loan interest rate has been revised?
Check your latest loan statement, or contact your bank’s loan servicing team to confirm if your interest rate has been updated following the repo rate cut.
4. Can I prepay my loan partially to save on interest?
Yes, prepaying helps reduce principal and, consequently, interest burden. Check if your lender allows prepayment without penalties.
Tips for Home Loan Borrowers Post Repo Rate Cut
- Monitor your loan statements: Ensure your bank has passed on the rate cut benefits.
- Consider top-up loans or refinancing: Use the lower interest window to reduce costs.
- Increase EMI payments: If affordable, this shortens tenure and reduces total interest.
- Consult your financial advisor: Plan accordingly for effective debt management.
Conclusion
The 0.25% reduction in RBI’s repo rate to 5.25% provides a meaningful opportunity for home loan borrowers to reduce their EMI and overall interest outgo. By understanding how your loan interest rates are tied to the repo rate and leveraging tools like the EMI calculator above, you can make informed financial decisions to optimize your home loan repayment schedule and improve your personal finances.
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