The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points, bringing it down from 6.5% to 6.25%. This marks the first rate cut in five years, a move expected to ease borrowing costs for homebuyers.

The decision by the Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, also lowered the Standing Deposit Facility (SDF) rate to 6.0% and the Marginal Standing Facility (MSF) and Bank Rate to 6.5%.

How does the repo rate affect home loans?

The repo rate influences interest rates on loans, including home loans.

When the RBI lowers the repo rate, banks typically reduce their lending rates, making home loans cheaper.

This results in lower EMIs for existing borrowers and makes borrowing more attractive for new homebuyers.

Who saves what?

According to Adhil Shetty, CEO of BankBazaar, the rate cut can translate into significant savings for home loan borrowers.

“If you have a 20-year home loan at 8.75% and have paid 12 EMIs by March, a 25 basis point cut from April will bring down your interest outgo by ₹8,417 per lakh. On a ₹50 lakh loan, this results in savings of ₹4.20 lakh over the tenure, reducing the loan period by 10 EMIs,” Shetty said.

Shetty recommended borrowers to explore refinancing options.

“If a borrower refinances their loan to a rate lower by 50 basis points, say 8.25%, they can save ₹14,480 per lakh over the remaining tenure. This translates to nearly 15% savings per lakh,” he said.

Factoring in recent income tax cuts, salaried individuals could see significant gains.

“For someone earning ₹25 lakh annually, tax savings amount to ₹1.14 lakh, and interest savings on a ₹50 lakh loan could be ₹1.50 lakh. This adds up to total savings of ₹2.64 lakh per year or ₹22,000 per month,” Shetty said.

It must be noted that recently Budget 2025 has made income up to ₹12 lakh tax-free under the new regime by allowing deductions and rebates. The standard deduction of ₹75,000 is also applicable.

Is it also a boost for homebuyers?

Experts believe the rate cut will enhance affordability and boost home sales.

Yashank Wason, Managing Director, Royal Green Realty, said, “The repo rate cut, unchanged since February 2023, will benefit homebuyers by reducing EMIs and making refinancing more attractive.”

Rajat Khandelwal, Group CEO of Tribeca Developers, highlighted the impact on premium markets. “Lower borrowing costs improve financial predictability and strengthen buyer confidence. This will sustain real estate growth, particularly in MMR, NCR, and Pune,” he said.

Anuj Puri, Chairman of ANAROCK Group, said: “The repo rate cut, combined with recent tax benefits, will encourage first-time homebuyers. However, rising property prices might offset some gains. In 2024, NCR saw a 30% price increase, and the top 7 cities recorded an average annual rise of 21%.”

Beyond housing: Commercial real estate and REITs

The rate cut could also benefit commercial real estate. Lower borrowing costs can help businesses invest in office spaces.

Additionally, Real Estate Investment Trusts (REITs) may become more attractive to investors seeking stable returns in a lower-rate environment.

The catch: When will banks pass on the benefit

Home loan borrowers with floating rates or new loans stand to benefit from the repo rate cut, with potential savings on EMIs.

However, those with fixed-rate home loans won’t see a reduction unless they refinance.

While the rate cut is a positive step, its effectiveness depends on how banks adjust their lending rates. If banks delay passing on the benefits, borrowers may not see immediate relief.

The full impact will also unfold on how inflation affects property prices in the coming months.