This cut marks the first reduction since May 2020, when the repo rate was set at 4%.
Union Budget 2025: Major Relief for Home Loan Borrowers with a 1.8% Reduction in EMI!
The Union Budget 2025 brought welcome news for the middle class, especially with tax cuts. Now, another piece of good news has arrived. The Reserve Bank of India (RBI) has slashed the repo rate by 25 basis points (bps), bringing the rate down to 6.25% from 6.50%. This rate cut is expected to benefit new and existing borrowers, making home loans, auto loans, and personal loans more affordable.
The Repo Rate is the interest rate at which the RBI lends money to commercial banks in exchange for government securities. When the RBI reduces this rate, borrowing becomes cheaper for banks, which, in turn, reduces loan rates for consumers.
This cut marks the first reduction since May 2020, when the repo rate was set at 4%. The RBI had maintained the 4% rate between May 2020 and April 2022 before starting hikes in April 2022. Since then, the rate had gradually increased to 6.5% until now.
Read More: Marginal Income Tax Relief Under Budget 2025: What You Need To Know
The recent reduction in the repo rate will have a direct impact on home loan interest rates. Banks are expected to lower their lending rates, which will lead to more affordable loans for borrowers.
Home loan borrowers now have two options:
Let’s take a closer look at what this means for you.
For a home loan of ₹30 lakh taken for 20 years, with an interest rate falling from 9% to 8.75%, the EMI will reduce from ₹26,992 to ₹26,551. That’s a saving of ₹480, or roughly 1.8%. While the savings may seem small, they can add up over time.
For those with a larger loan, the savings can be significant. Consider a ₹60 lakh loan for 20 years. If the interest rate drops from 8.75% to 8.5%, your EMI will decrease from ₹53,023 to ₹52,069. This reduces the EMI by ₹954. Additionally, over the course of the loan, you could save around ₹2.17 lakh in total interest.
Moreover, the reduction in interest rates will also shorten the loan tenure. In the case of the ₹60 lakh loan, you could pay off the loan about 4 EMIs earlier.
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The 0.25% rate cut offers immediate relief to borrowers after Union Budget 2025. Whether you choose to lower your EMI or shorten the loan tenure, this reduction gives you more flexibility and can result in long-term savings.
The impact of this change might not be massive in the short term, but it’s still an opportunity for borrowers to make the most of reduced rates. For those planning to take a loan in the near future, this rate cut offers more affordable terms, giving an edge to new borrowers as well.
The RBI’s decision to reduce the repo rate will bring relief to home loan borrowers across India. Whether you’re a new borrower or an existing one, this move will make loans cheaper and help ease the burden of monthly payments. Consider adjusting your EMI or shortening your loan tenure to benefit from the reduced interest rates and save on your home loan.
