RBI cuts repo rate: Interest savings of Rs 4.36 lakh on Rs 50 lakh loan

Your home loan EMI is set to decrease as the Reserve Bank of India (RBI) announces a 25 bps reduction in the repo rate, following a unanimous decision by the Monetary Policy Committee. This marks the first repo rate cut in nearly five years.

Consider this: Assuming you have an outstanding home loan of Rs 64,00,000 at an interest rate of 8.5% for 20 years. Your current monthly EMI would be Rs 55,541. However, with the recent repo rate cut, if the interest rate drops to 8.25%, your EMI would decrease to Rs 54,532 per month. This reduction results in monthly savings of Rs 1,008. This reduction in EMI provides borrowers with additional financial relief, improving affordability over the loan tenure. Similarly your EMI will decrease by around Rs 1,181 if you have a home loan of Rs 75 lakh at the existing rate of 8.5 per cent for the tenure of 20 years. It will decrease by Rs 788 if the home loan size is Rs 50 lakh and Rs 472 if your home loan is Rs 30 lakh.

“The repo rate cut is hugely welcome, and we congratulate Governor Malhotra on beginning his term with a bang. With the tax rate cuts earlier this month, the salaried and the middle class have received a double boost to tackle inflation and boost household savings,” says BankBazaar CEO Adhil Shetty.

"If you have a 20-year home loan at a rate of 9% and had paid 12 EMIs by March, with a rate cut of 25 bps kicking in from April, your interest savings will improve. For example, on a loan of Rs 50 lakh, you’ll save Rs 4.36 lakh at this rate, with 10 EMIs being shaved off the loan tenure, all other parameters remaining constant," says Shetty.

"A salaried person with a gross income of Rs 25 lakh and a home loan of Rs 50 lakh (20 years, 9%, 12 EMIs paid by March 2025) can hope to save a total of Rs 1.37 lakh in FY2025-26 or Rs 11,461 per month. This will be through a combination of interest savings on the home loan rate reduction of 25 BPS and the tax savings from higher tax slabs from April 1," he further explains.

Currently, home loans are benchmarked against Marginal Cost of Funds Based Lending Rate (MCLR) and Repo Linked Lending Rate (RLLR). This is because the Reserve Bank of India (RBI) in 2019 directed all banks to benchmark their new loans against external benchmarks as banks were not fully passing on the benefit of the rate cut by RBI to their borrowers. Banks were asked to benchmark all new floating rate personal or retail loans to one of the following: RBI's repo rate, Government of India 3-months treasury bill yield published by Financial Benchmarks India (FBIL), 6-months treasury bill or any other benchmark market interest rate published by the FBIL. The existing borrowers were, however, given the choice to transfer to external benchmarks or continue with their existing rates.

“The repo rate cut will not only improve liquidity but also boost consumption and purchasing power, ultimately driving economic growth. Lower borrowing costs are set to provide a significant push to the real estate sector, as reduced home loan interest rates make homeownership more accessible. This move is expected to encourage higher demand for housing, benefiting both end-users and investors alike,” says Sahil Agarwal, CEO, Nimbus Group.