RBI cuts repo rate to 5.25%; homebuyers set to benefit as loan EMIs may ease further

Hyderabad: Did you know the Reserve Bank of India’s latest repo rate cut is set to directly benefit homebuyers? With borrowing costs coming down further, home loan EMIs are expected to ease, offering big relief to thousands of families planning to buy a house.

The RBI on Friday cut the repo rate by another 25 basis points, bringing it down to 5.25 per cent.

This is the fourth rate cut in 2025, taking the total reduction so far this year to 125 basis points. The move is expected to significantly reduce the interest burden on home loan borrowers, while fixed deposit investors may see lower returns going forward.

What the repo rate cut means

The repo rate is the interest rate at which the RBI lends money to banks. When this rate comes down, banks are able to borrow at a lower cost and, in turn, reduce lending rates for customers.

Since most new home loans are now linked to the External Benchmark Lending Rate (EBLR), the benefit of the rate cut is transferred to borrowers faster.

Banks have already passed on most of the benefit

Out of the 125 basis point reduction announced this year, banks have already passed on nearly 100 basis points to borrowers. With this latest 25 basis point cut, EMIs on EBLR-linked home loans are likely to come down further in the coming weeks.

Last year, home loan interest rates were hovering around 9 per cent. Now, many banks are offering loans at below 7.5 per cent, easing the financial burden on homebuyers.

How much will a borrower save?

Consider a borrower who has taken a Rs 50 lakh home loan for 20 years. They stand to make substantial savings.

Here’s a look at how the rate cuts affect the EMIs.

Before the rate cuts:

Interest rate: 8.50%

Monthly EMI: Rs 43,391

After the rate cuts:

Interest rate: 7.25%

Monthly EMI: Rs 39,518

This results in a monthly saving of nearly Rs 4,000. Over the full loan tenure, the total saving works out to approximately Rs 9.29 lakh.

Bigger gain if EMI is kept the same

Financial experts say borrowers can save even more by continuing to pay the old EMI amount, instead of opting for a lower EMI after the rate cut. By doing so, the loan tenure can be reduced by around 42 months (3.5 years)

The total interest savings can go up to Rs 18 lakh. This strategy allows borrowers to become debt-free much faster while sharply reducing interest outgo.

Trouble ahead for fixed deposit investors

While borrowers celebrate, fixed deposit investors may face disappointment. With the RBI cutting policy rates, banks and small finance banks are expected to lower FD interest rates soon.

Existing deposits will continue at the old agreed rates.

New deposits will most likely earn lower interest.

Currently, some banks are offering 7 to 7.25 per cent on long-term fixed deposits. These rates are expected to soften further.

The RBI’s aggressive rate-cut cycle is clearly aimed at boosting borrowing and economic growth. While it offers strong relief to homebuyers, traditional savers may now need to rework their investment strategies.